Graphic image: Row of books on library shelfA Gold Classics Library Selection

The only “Why Gold” infographic you will ever need

by Jeff Desjardins/Visual Capitalist

Editor’s Note: This five-part infographic on gold [Links below] will educate and delight prospective and experienced gold owners alike. Not the stuff of dry economics, it reveals in roughly 15-minutes viewing time how gold came to be mankind’s most revered form of money and safe haven asset, and why it is likely to remain so for a long time to come.

The most sought after metal on Earth 
Unearthing the world’s supply
The eclipsing demand of the East
The best reasons to own gold
Trends investors should be watching

Graphic image:  Gold and the best reasons to own it

Reprinted with permission.

Graphic of USAGOLD client portal connection. Ready to invest.  Start here.

A word on USAGOLD – USAGOLD ranks among the most reputable gold companies in the United States. Founded in the 1970s and still family-owned, it is one of the oldest and most respected names in the gold industry. USAGOLD has always attracted a certain type of investor – one looking for a high degree of reliability and market insight coupled with a professional client (rather than customer) approach to precious metals ownership. We are large enough to provide the advantages of scale, but not so large that we do not have time for you. (We invite your visit to the Better Business Bureau website to review our five-star, zero-complaint record. The report includes a large number of verified customer reviews.)

Graphic of Online Order Desk Connection: Great prices. Quick delivery. All the time.

1-800-869-5115 Ext#100
[email protected]

Disclaimer – Opinions expressed on the website do not constitute an offer to buy or sell, or the solicitation of an offer to buy or sell any precious metals product, nor should they be viewed in any way as investment advice or advice to buy, sell or hold. USAGOLD, Inc. recommends the purchase of physical precious metals for asset preservation purposes, not speculation. Utilization of these opinions for speculative purposes is neither suggested nor advised. Commentary is strictly for educational purposes, and as such USAGOLD does not warrant or guarantee the accuracy, timeliness or completeness of the information found here.

Posted in Gold Classics Library |


graphic image: row of books on library shelfGold Classics Library Selection

The only “Why Gold” infographic you will ever need

by Jeff Desjardins/Visual Capitalist

Editor’s Note: This five-part infographic on gold [Links below] will educate and delight prospective and experienced gold owners alike. Not the stuff of dry economics, it reveals in roughly 15-minutes viewing time how gold came to be mankind’s most revered form of money and safe haven asset, and why it is likely to remain so for a long time to come.

The most sought after metal on Earth 
Unearthing the world’s supply
The eclipsing demand of the East
The best reasons to own gold
Trends investors should be watching

Graphic image:  Gold-The eclipsing demand of the East

Reprinted with permission.

Graphic of USAGOLD client portal connection. Ready to invest.  Start here.

A word on USAGOLD – USAGOLD ranks among the most reputable gold companies in the United States. Founded in the 1970s and still family-owned, it is one of the oldest and most respected names in the gold industry. USAGOLD has always attracted a certain type of investor – one looking for a high degree of reliability and market insight coupled with a professional client (rather than customer) approach to precious metals ownership. We are large enough to provide the advantages of scale, but not so large that we do not have time for you. (We invite your visit to the Better Business Bureau website to review our five-star, zero-complaint record. The report includes a large number of verified customer reviews.)

Graphic of Online Order Desk Connection: Great prices. Quick delivery. All the time.

1-800-869-5115 Ext#100
[email protected]

Disclaimer – Opinions expressed on the website do not constitute an offer to buy or sell, or the solicitation of an offer to buy or sell any precious metals product, nor should they be viewed in any way as investment advice or advice to buy, sell or hold. USAGOLD, Inc. recommends the purchase of physical precious metals for asset preservation purposes, not speculation. Utilization of these opinions for speculative purposes is neither suggested nor advised. Commentary is strictly for educational purposes, and as such USAGOLD does not warrant or guarantee the accuracy, timeliness or completeness of the information found here.

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Posted in Gold Classics Library |


A Gold Classics Library Selection

The only “Why Gold” infographic you will ever need

by Jeff Desjardins/Visual Capitalist

Editor’s Note: This five-part infographic on gold [Links below] will educate and delight prospective and experienced gold owners alike. Not the stuff of dry economics, it reveals in roughly 15-minutes viewing time how gold came to be mankind’s most revered form of money and safe haven asset, and why it is likely to remain so for a long time to come.

The most sought after metal on Earth 
Unearthing the world’s supply
The eclipsing demand of the East
The best reasons to own gold
Trends investors should be watching

Graphic Image:  Gold-Unearthing the World's Supply

Reprinted with permission.

Graphic of USAGOLD client portal connection. Ready to invest.  Start here.

A word on USAGOLD – USAGOLD ranks among the most reputable gold companies in the United States. Founded in the 1970s and still family-owned, it is one of the oldest and most respected names in the gold industry. USAGOLD has always attracted a certain type of investor – one looking for a high degree of reliability and market insight coupled with a professional client (rather than customer) approach to precious metals ownership. We are large enough to provide the advantages of scale, but not so large that we do not have time for you. (We invite your visit to the Better Business Bureau website to review our five-star, zero-complaint record. The report includes a large number of verified customer reviews.)

Graphic of Online Order Desk Connection: Great prices. Quick delivery. All the time.

1-800-869-5115 Ext#100
[email protected]

Disclaimer – Opinions expressed on the website do not constitute an offer to buy or sell, or the solicitation of an offer to buy or sell any precious metals product, nor should they be viewed in any way as investment advice or advice to buy, sell or hold. USAGOLD, Inc. recommends the purchase of physical precious metals for asset preservation purposes, not speculation. Utilization of these opinions for speculative purposes is neither suggested nor advised. Commentary is strictly for educational purposes, and as such USAGOLD does not warrant or guarantee the accuracy, timeliness or completeness of the information found here.

Posted in Gold Classics Library |


Gold Classics Library Selection

The only “Why Gold” infographic you will ever need

by Jeff Desjardins/Visual Capitalist

Editor’s Note: This five-part infographic on gold [Links below] will educate and delight prospective and experienced gold owners alike. Not the stuff of dry economics, it reveals in roughly 15-minutes viewing time how gold came to be mankind’s most revered form of money and safe haven asset, and why it is likely to remain so for a long time to come.

The most sought after metal on Earth 
Unearthing the world’s supply
The eclipsing demand of the East
The best reasons to own gold
Trends investors should be watching

Graphic image:  Gold the most sought after metal on earth

Reprinted with permission.

Graphic of USAGOLD client portal connection. Ready to invest.  Start here.

A word on USAGOLD – USAGOLD ranks among the most reputable gold companies in the United States. Founded in the 1970s and still family-owned, it is one of the oldest and most respected names in the gold industry. USAGOLD has always attracted a certain type of investor – one looking for a high degree of reliability and market insight coupled with a professional client (rather than customer) approach to precious metals ownership. We are large enough to provide the advantages of scale, but not so large that we do not have time for you. (We invite your visit to the Better Business Bureau website to review our five-star, zero-complaint record. The report includes a large number of verified customer reviews.)

Graphic of Online Order Desk Connection: Great prices. Quick delivery. All the time.

1-800-869-5115 Ext#100
[email protected]

Disclaimer – Opinions expressed on the website do not constitute an offer to buy or sell, or the solicitation of an offer to buy or sell any precious metals product, nor should they be viewed in any way as investment advice or advice to buy, sell or hold. USAGOLD, Inc. recommends the purchase of physical precious metals for asset preservation purposes, not speculation. Utilization of these opinions for speculative purposes is neither suggested nor advised. Commentary is strictly for educational purposes, and as such USAGOLD does not warrant or guarantee the accuracy, timeliness or completeness of the information found here.

Posted in Gold Classics Library |


Row of books on library shelf

The only “Why Gold” infographic you will ever need

by Jeff Desjardins/Visual Capitalist

Editor’s Note: This five-part infographic on gold [Links below] will educate and delight prospective and experienced gold owners alike. Not the stuff of dry economics, it reveals in roughly 15-minutes viewing time how gold came to be mankind’s most revered form of money and safe haven asset, and why it is likely to remain so for a long time to come.

The most sought after metal on Earth 
Unearthing the world’s supply
The eclipsing demand of the East
The best reasons to own gold
Trends investors should be watching

Graphic image:  Gold – now and beyond

Reprinted with permission.

Graphic of USAGOLD client portal connection. Ready to invest.  Start here.

A word on USAGOLD – USAGOLD ranks among the most reputable gold companies in the United States. Founded in the 1970s and still family-owned, it is one of the oldest and most respected names in the gold industry. USAGOLD has always attracted a certain type of investor – one looking for a high degree of reliability and market insight coupled with a professional client (rather than customer) approach to precious metals ownership. We are large enough to provide the advantages of scale, but not so large that we do not have time for you. (We invite your visit to the Better Business Bureau website to review our five-star, zero-complaint record. The report includes a large number of verified customer reviews.)

Graphic of Online Order Desk Connection: Great prices. Quick delivery. All the time.

1-800-869-5115 Ext#100
[email protected]

Disclaimer – Opinions expressed on the website do not constitute an offer to buy or sell, or the solicitation of an offer to buy or sell any precious metals product, nor should they be viewed in any way as investment advice or advice to buy, sell or hold. USAGOLD, Inc. recommends the purchase of physical precious metals for asset preservation purposes, not speculation. Utilization of these opinions for speculative purposes is neither suggested nor advised. Commentary is strictly for educational purposes, and as such USAGOLD does not warrant or guarantee the accuracy, timeliness or completeness of the information found here.

Posted in Gold Classics Library |


Row of books on library shelf

Gold Classics Library
Timeless and treasured essays collected over our more
than two decades on the world wide web

Money and Politics in the Land of Oz

by Quentin P. Taylor
L. Frank Baum claimed to have written The Wonderful Wizard of Oz “solely to pleasure the children” of his day, but scholars have found enough parallels between Dorothy’s yellow-brick odyssey and the politics of 1890s Populism to suggest otherwise. Did Baum intend to pen a subtle political satire on monetary reform?

Gold and Economic Freedom

by Alan Greenspan
“[T]he welfare statists were quick to recognize that if they wished to retain political power, the amount of taxation had to be limited and they had to resort to programs of massive deficit spending, i.e., they had to borrow money, by issuing government bonds, to finance welfare expenditures on a large scale.”

Who Owns and Controls the Federal Reserve?

by Dr. Edward Flaherty
Is the Federal Reserve System secretly owned and covertly controlled by powerful foreign banking interests? If so, how?

Gold Seizure: How it could happen and what you can do about it

by David L. Ganz, J.D.
Much has been offered in the way of opinion on the matter of a potential gold confiscation, but too little of it is well-researched, well-informed, and grounded in a true understanding of the laws and regulations involved. Herein the author, a prominent New York City attorney who specializes in numismatic and precious metals’ law and is often called upon by Congress to offer testimony in this regard, unravels past legal precedent and offers practical suggestions on a course of action for those concerned with the possibility of a contemporary confiscation.

Layman’s Guide to the Rules and Laws of Finance and Investment

by R.E.McMaster
There is an old saying that not all that glitters is gold — as in the gold coins many of you have held in your hands. There is another kind of gold that inhabits the practical wisdom of the ages. In today’s “go-get-’em,” “read-it-and-forget-it” world of everyday web browsing, it can be a challenge to separate the run of the mill from the meaningful.

Britain’s Gold Sales ‘a Reckless Act’

by Sir Peter Tapsell
In this speech before the House of Commons, June 16, 1999, Sir Peter Tapsell argued vigorously to keep the government from selling off over half of the country’s gold reserves. It remains one of the most eloquent speeches ever made on the merits of gold ownership for nation-states and individuals alike.

Alan Greenspan-Ron Paul Congressional Exchanges

The Congressional exchanges with Ron Paul Here we spotlight Fed Chairman Alan Greenspan’s remarkable and extended dialogue with Representative Dr. Ron Paul from 1997 – 2005 before the Congressional Committee on Financial Services.

The ‘Criterion’ Speech on Gold

by Charles DeGaulle
Delivered at the Palais de l’Élysée in 1965, Charles DeGaulle’s “Criterion” speech remains perhaps the most eloquent short discourse ever delivered on gold’s historical role as the final arbiter of value.

Fiat Money Inflation in France

by Andrew Dickson White
The famous study on the late 1700s runaway inflation in France. White reveals toward the end of the essay how those who had the wisdom to keep their savings in gold weathered the inflationary storm.

Extraordinary Popular Delusions and the Madness of Crowds

by Charles Mackay
We include this remarkable study with an agenda. If the rising generations now receiving their education, or even their more jaded elders, find application in their own investment philosophy, then the purpose of this Gilded Opinion entry has been served. Complicated and timelessly revealing, here you will find examples of herd behavior, delusion, mania, craftiness, and financial loss and gain.

Ten Rules For Investing In Gold

by John Hathaway
Gold is a controversial, anti-establishment investment. Therefore, do not rely on conventional financial media and brokerage house commentary. In this area, such commentary is even more misleading and ill-informed than usual.

The Scientific Tale of the Creation of Gold

by Robert Krulich
Only in a supernova is it possible to create atoms with 30 protons, 40 protons, 50 protons, or even 60 protons. Nature prefers even numbers for stability…Gold is a rare, odd-numbered atom with 79 protons.

Pompous Prognosticators

by Colin Seymour
Optimism was abundant as the stock market crash of 1929 unfolded.  Seymour offers an oft-referenced chronology sure to raise an eyebrow.

Gresham’s Law in the History of Money

by Dr. Robert A. Mundell, 1999 Nobel Laureate
Gresham’s Law is not a statement about static conditions; it is a statement about a dynamic process. “Good money drives out bad if they exchange for the same price” is an acceptable expression of Gresham’s Law. But a better statement of it is that “Cheap money drives out dear if they exchange for the same price.”

The Only “Why Gold” Infographic You Will Ever Need

by Jeff Desjardins
This five-part infographic on gold will educate and delight prospective and experienced gold owners alike. Not the stuff of dry economics, it reveals in roughly 15-minutes viewing time how gold came to be mankind’s most revered form of money and safe-haven asset, and why it is likely to remain so for a long time to come.

Graphic of Client Portal connection: Ready to invest. Start here.
A word on USAGOLD – USAGOLD ranks among the most reputable gold companies in the United States. Founded in the 1970s and still family-owned, it is one of the oldest and most respected names in the gold industry. USAGOLD has always attracted a certain type of investor – one looking for a high degree of reliability and market insight coupled with a professional client (rather than customer) approach to precious metals ownership. We are large enough to provide the advantages of scale, but not so large that we do not have time for you. (We invite your visit to the Better Business Bureau website to review our five-star, zero-complaint record. The report includes a large number of verified customer reviews.)


[email protected]

Posted in Gold Classics Library, Reference |


Image of a row of books on a library shelfGold Classics Library Selection

Fiat Money Inflation in France

How It Came, What It Brought, and How It Ended

by Andrew Dickson White

Image of a French assignat 1788


Andrew Dickson White ends his classic historical essay on hyperinflation, “Fiat Money Inflation in France,” with one of the more famous lines in economic literature: “There is a lesson in all this which it behooves every thinking man to ponder.” This lesson — that there is a connection between government over-issuance of paper money, inflation and the destruction of middle-class savings — has been so routinely ignored in the modern era that enlightened savers the world over wonder if public officials will ever learn it.

The list of nations succumbing to very high and/or hyperinflationary episodes since the French experience at the end of the 18th century is legion. Here are a few of the more notable occurrences:

1. The Greenback and Confederate states inflations in the United States during and after the Civil War between the States;

2. A rash of national hyperinflations after World War I including Russia (1921-1924, 213 percent annualized); Poland (1922-1924, 275 percent annualized); Austria (1921-1922, 134 percent annualized); Hungary (1922-24, 98 percent annualized) and the most famous of them all, the Nightmare German Inflation (1920-1923, 3.25 million percent annualized);

3. Another round of episodes during and after World War II including Greece (1943-1944, 8.55 billion percent annualized); Hungary (1945-1946, 4.19 quintillion percent annualized) and China (1949-1950, unmeasured);

4. A rash of post World War II episodes including two in Argentina, and one each in Brazil, Chile, Nicaragua, Bolivia, Peru, Poland, Russia/Ukraine and Yugoslavia/Serbia (1);

5. The Asian contagion (1997-1998) including Indonesia, Thailand, South Korea, the Philippines and Malaysia which managed to display deflationary and inflationary symptoms simultaneously.

According to an International Monetary Fund sponsored study by Stanley Fischer, Ratna Sahay and Carlos Veigh (2002), hyperinflations have been a rare commodity since 1947 and the dawn of the Keynesian era, but “much more common have been longer inflationary processes with inflation rates above 100 percent per annum.” These they classify as “very high inflation” episodes. The study finds that close to 20% of the 133 countries studied experienced inflations of that magnitude. The average duration of these episodes was 40 months with a minimum of 12 months and maximum of over 200 months.

Not covered in the study is the myriad of double-digit inflation episodes since World War II (like the 1970s inflation in the United States) even though these events carried significant political and economic implications for the countries affected. Quite often though, these lesser inflations served as preludes to more debilitating events at some point down the road. Other times, as in the United States, public policies were instituted to smother the inflationary fires before they reached the critical stage.

All in all, it is difficult not to classify inflations of any size and duration as significant to the middle class. Few of us would gain comfort from the fact that the inflation we were experiencing failed to transcend the 100% per annum threshold or failed to escalate to a state of hyperinflation. Just the specter of double-digit inflation is enough to provoke some judicious portfolio hedging.

In 2019, the famous Andrew Dickson White essay you are about to read will celebrate its 107th anniversary. How can something written over 100 years ago describing monetary events occurring almost 215 years ago in France carry relevance for investors in the United States (and the rest of the industrialized world) today? The short answer is that the United States increasingly appears to be traveling a path similar to that of France in 1789 when the debasement of the currency, as Dickson White so matter of factly tells us, left the bulk of the population penniless. Fisher-Sahay-Veigh conclude that “the link with the French revolution supports the view that hyperinflations are modern phenomena related to printing paper money in order to finance large fiscal deficits caused by wars, revolutions, the end of empires and the establishment of new states.” How many Americans would read those words without some degree of apprehension?

What makes this particular dollar inflation even more dangerous than the assignat inflation studied by Dickson White is the potentially corrosive effect it is having on the international economy as a whole. The French inflation was localized; the dollar inflation is internationalized transcending national boundaries and encompassing not just the world’s most powerful economies but, in one way or another, most of the world’s smaller, less-developed economies as well. Since the global village as a whole has never been in this situation before, it is difficult to determine how the current situation might resolve itself. Suffice it to say that the potential for an international dollar crisis is something about which we should all be concerned.

The Andrew Dickson White essay tells the story of how good men — with nothing but the noblest of intentions – can drag a nation into monetary chaos in service to a political end. Still, there is something else in Dickson White’s essay — something perhaps even more profound. Democratic institutions, he reminds us, well-meaning though they might be, have a fateful, almost pre-destined inclination to print money when backed to the wall by unpleasant circumstances. You will no doubt see in this essay the inescapable similarities between France then and the United States now.

Dickson White’s section sketching the hedging aspect of the roughly one-fifth gold ounce coin, the Louis d’Or during this tumultuous period speaks volumes. And after all is said and done, it might end up being the most important lesson of all. Gold, the one primary portfolio asset which is not another’s liability, was the best defense in France in 1795; it is likely we will rediscover that it is the best defense now.

– USAGOLD/Michael J. Kosares

by Andrew Dickson White

photo of author/historian/lecturer Andrew Dickson WhiteAndrew Dickson White (1910)


As far back as just before our Civil War I made, in France and elsewhere, a large collection of documents which had appeared during the French Revolution, including newspapers, reports, speeches, pamphlets, illustrative material of every sort, and, especially, specimens of nearly all the Revolutionary issues of paper money — from notes of ten thousand livres to those of one sou.

Upon this material, mainly, was based a course of lectures then given to my students, first at the University of Michigan and later at Cornell University, and among these lectures, one on “Paper Money Inflation in France.”

This was given simply because it showed one important line of facts in that great struggle; and I recall, as if it were yesterday, my feeling of regret at being obliged to bestow so much care and labor upon a subject to all appearance so utterly devoid of practical value. I am sure that it never occurred, either to my Michigan students or to myself, that it could ever have any bearing on our own country. It certainly never entered into our minds that any such folly as that exhibited in those French documents of the eighteenth century could ever find supporters in the United States of the nineteenth.

Some years later, when there began to be demands for large issues of paper money in the United States, I wrought some of the facts thus collected into a speech in the Senate of the State of New York, showing the need of especial care in such dealings with financial necessities.

In 1876, during the “greenback craze,” General Garfield and Mr. S. B. Crittenden, both members of the House of Representatives at that time, asked me to read a paper on the same general subject before an audience of Senators and Representatives of both parties in Washington. This I did, and also gave it later before an assemblage of men of business at the Union League Club in New York.

Various editions of the paper were afterward published, among them, two or three for campaign purposes, in the hope that they might be of use in showing to what folly, cruelty, wrong and pain the passion for “fiat money” may lead.

Other editions were issued at a later period, in view of the principle involved in the proposed unlimited coinage of silver in the United States, which was, at bottom, the idea which led to that fearful wreck of public and private prosperity in France.

For these editions there was an added reason in the fact that the utterances of sundry politicians at that time pointed clearly to issues of paper money practically unlimited. These men were logical enough to see that it would be inconsistent to stop at the unlimited issue of silver dollars which cost really something when they could issue unlimited paper dollars which virtually cost nothing.

In thus exhibiting facts which Bishop Butler would have recognized as confirming his theory of “The Possible Insanity of States,” it is but just to acknowledge that the French proposal was vastly more sane than that made in our own country. Those French issues of paper rested not merely “on the will of a free people,” but on one-third of the entire landed property of France; on the very choicest of real property in city and country–the confiscated estates of the Church and of the fugitive aristocracy–and on the power to use the paper thus issued in purchasing this real property at very low prices.

I have taken all pains to be exact, revising the whole paper in the light of the most recent publications and giving my authority for every important statement, and now leave the whole matter with my readers.

At the request of a Canadian friend, who has expressed a strong wish that this work be brought down to date, I have again restudied the subject in the light of various works which have appeared since my earlier research,–especially Levasseur’s “Histoire des classes ouvrières et de l’industrie en France,”–one of the really great books of the twentieth century;–Dewarmin’s superb “Cent Ans de numismatique Française” and sundry special treatises. The result has been that large additions have been made regarding some important topics, and that various other parts of my earlier work have been made more clear by better arrangement and supplementary information.

ANDREW D. WHITE, Cornell University, September, 1912.


Early in the year 1789 the French nation found itself in deep financial embarrassment: there was a heavy debt and a serious deficit.

The vast reforms of that period, though a lasting blessing politically, were a temporary evil financially. There was a general want of confidence in business circles; capital had shown its proverbial timidity by retiring out of sight as far as possible; throughout the land was stagnation.

Statesmanlike measures, careful watching and wise management would, doubtless, have ere long led to a return of confidence, a reappearance of money and a resumption of business; but these involved patience and self-denial, and, thus far in human history, these are the rarest products of political wisdom. Few nations have ever been able to exercise these virtues; and France was not then one of these few.[2]

There was a general search for some short road to prosperity: ere long the idea was set afloat that the great want of the country was more of the circulating medium; and this was speedily followed by calls for an issue of paper money. The Minister of Finance at this period was Necker. In financial ability he was acknowledged as among the great bankers of Europe, but his was something more than financial ability: he had a deep feeling of patriotism and a high sense of personal honor.

The difficulties in his way were great, but he steadily endeavored to keep France faithful to those principles in monetary affairs which the general experience of modem times had found the only path to national safety. As difficulties arose the National Assembly drew away from him, and soon came among the members renewed suggestions of paper money: orators in public meetings, at the clubs and in the Assembly, proclaimed it a panacea–a way of “securing resources without paying interest.” Journalists caught it up and displayed its beauties, among these men, Marat, who, in his newspaper, “The Friend of the People,” also joined the cries against Necker, picturing him–a man of sterling honesty, who gave up health and fortune for the sake of France–as a wretch seeking only to enrich himself from the public purse.

Against this tendency toward the issue of irredeemable paper Necker contended as best he might. He knew well to what it always had led, even when surrounded by the most skillful guarantees. Among those who struggled to support ideas similar to his was Bergasse, a deputy from Lyons, whose pamphlets, then and later, against such issues exerted a wider influence, perhaps, than any others: parts of them seem fairly inspired. Any one to-day reading his prophecies of the evils sure to follow such a currency would certainly ascribe to him a miraculous foresight, were it not so clear that his prophetic power was due simply to a knowledge of natural laws revealed by history. But this current in favor of paper money became so strong that an effort was made to breast it by a compromise: and during the last months of 1789 and the first months of 1790 came discussions in the National Assembly looking to issues of notes based upon the landed property of the Church,–which was to be confiscated for that purpose. But care was to be taken; the issue was to be largely in the shape of notes of 1,000, 300 and 200 livres, too large to be used as ordinary currency, but of convenient size to be used in purchasing the Church lands; besides this, they were to bear interest and this would tempt holders to hoard them. The Assembly thus held back from issuing smaller obligations.

Remembrances of the ruin which had come from the great issues of smaller currency at an earlier day were still vivid. Yet the pressure toward a popular currency for universal use grew stronger and stronger. The finance committee of the Assembly reported that “the people demand a new circulating medium”; that “the circulation of paper money is the best of operations”; that “it is the most free because it reposes on the will of the people”; that “it will bind the interest of the citizens to the public good.”

The report appealed to the patriotism of the French people with the following exhortation: “Let us show to Europe that we understand our own resources; let us immediately take the broad road to our liberation instead of dragging ourselves along the tortuous and obscure paths of fragmentary loans.” It concluded by recommending an issue of paper money carefully guarded, to the full amount of four hundred million livres, and the argument was pursued until the objection to smaller notes faded from view. Typical in the debate on the whole subject, in its various phases, were the declarations of M. Matrineau. He was loud and long for paper money, his only fear being that the Committee had not authorized enough of it; he declared that business was stagnant, and that the sole cause was a want of more of the circulating medium; that paper money ought to be made a legal tender; that the Assembly should rise above prejudices which the failures of John Law’s paper money had caused, several decades before. Like every supporter of irredeemable paper money then or since, he seemed to think that the laws of Nature had changed since previous disastrous issues. He said: “Paper money under a despotism is dangerous; it favors corruption; but in a nation constitutionally governed, which itself takes care in the emission of its notes, which determines their number and use, that danger no longer exists.” He insisted that John Law’s notes at first restored prosperity, but that the wretchedness and ruin they caused resulted from their overissue, and that such an overissue is possible only under a despotism.[3]

M. de la Rochefoucauld gave his opinion that “the assignats will draw specie out of the coffers where it is now hoarded.[4]

On the other hand Cazalès and Maury showed that the result could only be disastrous. Never, perhaps, did a political prophecy meet with more exact fulfillment in every line than the terrible picture drawn in one of Cazalès’ speeches in this debate. Still the current ran stronger and stronger; Petion made a brilliant oration in favor of the report, and Necker’s influence and experience were gradually worn away.

Mingled with the financial argument was a strong political plea. The National Assembly had determined to confiscate the vast real property of the French Church,–the pious accumulations of fifteen hundred years. There were princely estates in the country, bishops’ palaces and conventual buildings in the towns; these formed between one-fourth and one-third of the entire real property of France, and amounted in value to at least two thousand million livres. By a few sweeping strokes all this became the property of the nation. Never, apparently, did a government secure a more solid basis for a great financial future.[5]

There were two special reasons why French statesmen desired speedily to sell these lands. First, a financial reason,–to obtain money to relieve the government. Secondly, a political reason,–to get this land distributed among the thrifty middle-classes, and so commit them to the Revolution and to the government which gave their title.

It was urged, then, that the issue of four hundred millions of paper, (not in the shape of interest-bearing bonds, as had at first been proposed, but in notes small as well as large), would give the treasury something to pay out immediately, and relieve the national necessities; that, having been put into circulation, this paper money would stimulate business; that it would give to all capitalists, large or small, the means for buying from the nation the ecclesiastical real estate, and that from the proceeds of this real estate the nation would pay its debts and also obtain new funds for new necessities: never was theory more seductive both to financiers and statesmen.

It would be a great mistake to suppose that the statesmen of France, or the French people, were ignorant of the dangers in issuing irredeemable paper money. No matter how skillfully the bright side of such a currency was exhibited, all thoughtful men in France remembered its dark side. They knew too well, from that ruinous experience, seventy years before, in John Law’s time, the difficulties and dangers of a currency not well based and controlled. They had then learned how easy it is to issue it; how difficult it is to check its overissue; how seductively it leads to the absorption of the means of the workingmen and men of small fortunes; how heavily it falls on all those living on fixed incomes, salaries or wages; how securely it creates on the ruins of the prosperity of all men of meagre means a class of debauched speculators, the most injurious class that a nation can harbor,–more injurious, indeed, than professional criminals whom the law recognizes and can throttle; how it stimulates overproduction at first and leaves every industry flaccid afterward; how it breaks down thrift and develops political and social immorality. All this France had been thoroughly taught by experience. Many then living had felt the result of such an experiment–the issues of paper money under John Law, a man who to this day is acknowledged one of the most ingenious financiers the world has ever known; and there were then sitting in the National Assembly of France many who owed the poverty of their families to those issues of paper. Hardly a man in the country who had not heard those who issued it cursed as the authors of the most frightful catastrophe France had then experienced.[6]

It was no mere attempt at theatrical display, but a natural impulse, which led a thoughtful statesman, during the debate, to hold up a piece of that old paper money and to declare that it was stained with the blood and tears of their fathers.

And it would also be a mistake to suppose that the National Assembly, which discussed this matter, was composed of mere wild revolutionists; no inference could be more wide of the fact. Whatever may have been the character of the men who legislated for France afterward, no thoughtful student of history can deny, despite all the arguments and sneers of reactionary statesmen and historians, that few more keen-sighted legislative bodies have ever met than this first French Constitutional Assembly. In it were such men as Sieyès, Bailly, Necker, Mirabeau, Talleyrand, DuPont de Nemours and a multitude of others who, in various sciences and in the political world, had already shown and were destined afterward to show themselves among the strongest and shrewdest men that Europe has yet seen.

But the current toward paper money had become irresistible. It was constantly urged, and with a great show of force, that if any nation could safely issue it, France was now that nation; that she was fully warned by her severe experience under John Law; that she was now a constitutional government, controlled by an enlightened, patriotic people,–not, as in the days of the former issues of paper money, an absolute monarchy controlled by politicians and adventurers; that she was able to secure every livre of her paper money by a virtual mortgage on a landed domain vastly greater in value than the entire issue; that, with men like Bailly, Mirabeau and Necker at her head, she could not commit the financial mistakes and crimes from which France had suffered under John Law, the Regent Duke of Orleans and Cardinal Dubois.

Oratory prevailed over science and experience. In April, 1790, came the final decree to issue four hundred millions of livres in paper money, based upon confiscated property of the Church for its security. The deliberations on this first decree and on the bill carrying it into effect were most interesting; prominent in the debate being Necker, Du Pont de Nemours, Maury, Cazalès, Petion, Bailly and many others hardly inferior. The discussions were certainly very able; no person can read them at length in the “Moniteur,” nor even in the summaries of the parliamentary history, without feeling that various modern historians have done wretched injustice to those men who were then endeavoring to stand between France and ruin.

This sum–four hundred millions, so vast in those days, was issued in assignats, which were notes secured by a pledge of productive real estate and bearing interest to the holder at three per cent. No irredeemable currency has ever claimed a more scientific and practical guarantee for its goodness and for its proper action on public finances. On the one hand, it had what the world recognized as a most practical security,–a mortgage an productive real estate of vastly greater value than the issue. On the other hand, as the notes bore interest, there seemed cogent reason for their being withdrawn from circulation whenever they became redundant.[7]

As speedily as possible the notes were put into circulation. Unlike those issued in John Law’s time, they were engraved in the best style of the art. To stimulate loyalty, the portrait of the king was placed in the center; to arouse public spirit, patriotic legends and emblems surrounded it; to stimulate public cupidity, the amount of interest which the note would yield each day to the holder was printed in the margin; and the whole was duly garnished with stamps and signatures to show that it was carefully registered and controlled.[8]

To crown its work the National Assembly, to explain the advantages of this new currency, issued an address to the French people. In this address it spoke of the nation as “delivered by this grand means from all uncertainty and from all ruinous results of the credit system.” It foretold that this issue “would bring back into the public treasury, into commerce and into all branches of industry strength, abundance and prosperity.”[9]

Some of the arguments in this address are worth recalling, and, among them, the following:–“Paper money is without inherent value unless it represents some special property. Without representing some special property it is inadmissible in trade to compete with a metallic currency, which has a value real and independent of the public action; therefore it is that the paper money which has only the public authority as its basis has always caused ruin where it has been established; that is the reason why the bank notes of 1720, issued by John Law, after having caused terrible evils, have left only frightful memories. Therefore it is that the National Assembly has not wished to expose you to this danger, but has given this new paper money not only a value derived from the national authority but a value real and immutable, a value which permits it to sustain advantageously a competition with the precious metals themselves.”[10]

But the final declaration was, perhaps, the most interesting. It was as follows:–

“These assignats, bearing interest as they do, will soon be considered better than the coin now hoarded, and will bring it out again into circulation.” The king was also induced to issue a proclamation recommending that his people receive this new money without objection.

All this caused great joy. Among the various utterances of this feeling was the letter of M. Sarot, directed to the editor of the Journal of the National Assembly, and scattered through France. M. Sarot is hardly able to contain himself as he anticipates the prosperity and glory that this issue of paper is to bring to his country. One thing only vexes him, and that is the pamphlet of M. Bergasse against the assignats; therefore it is after a long series of arguments and protestations, in order to give a final proof of his confidence in the paper money and his entire skepticism as to the evils predicted by Bergasse and others, M. Sarot solemnly lays his house, garden and furniture upon the altar of his country and offers to sell them for paper money alone.

There were, indeed, some gainsayers. These especially appeared among the clergy, who, naturally, abhorred the confiscation of Church property. Various ecclesiastics made speeches, some of them full of pithy and weighty arguments, against the proposed issue of paper, and there is preserved a sermon from one priest threatening all persons handling the new money with eternal damnation. But the great majority of the French people, who had suffered ecclesiastical oppression so long, regarded these utterances as the wriggling of a fish on the hook, and enjoyed the sport all the better.[11]

The first result of this issue was apparently all that the most sanguine could desire: the treasury was at once greatly relieved; a portion of the public debt was paid; creditors were encouraged; credit revived; ordinary expenses were met, and, a considerable part of this paper money having thus been passed from the government into the hands of the people, trade increased and all difficulties seemed to vanish. The anxieties of Necker, the prophecies of Maury and Cazalès seemed proven utterly futile. And, indeed, it is quite possible that, if the national authorities had stopped with this issue, few of the financial evils which afterwards arose would have been severely felt; the four hundred millions of paper money then issued would have simply discharged the function of a similar amount of specie. But soon there came another result: times grew less easy; by the end of September, within five months after the issue of the four hundred millions in assignats, the government had spent them and was again in distress.[12]

The old remedy immediately and naturally recurred to the minds of men. Throughout the country began a cry for another issue of paper; thoughtful men then began to recall what their fathers had told them about the seductive path of paper-money issues in John Law’s time, and to remember the prophecies that they themselves had heard in the debate on the first issue of assignats less than six months before.

At that time the opponents of paper had prophesied that, once on the downward path of inflation, the nation could not be restrained and that more issues would follow. The supporters of the first issue had asserted that this was a calumny; that the people were now in control and that they could and would check these issues whenever they desired.

The condition of opinion in the Assembly was, therefore, chaotic: a few schemers and dreamers were loud and outspoken for paper money; many of the more shallow and easy-going were inclined to yield; the more thoughtful endeavored to breast the current.

One man there was who could have withstood the pressure: Mirabeau. He was the popular idol,–the great orator of the Assembly and much more than a great orator,–he had carried the nation through some of its worst dangers by a boldness almost godlike; in the various conflicts he had shown not only oratorical boldness, but amazing foresight. As to his real opinion on an irredeemable currency there can be no doubt. It was the opinion which all true statesmen have held, before his time and since,–in his own country, in England, in America, in every modern civilized nation. In his letter to Cerutti, written in January, 1789, hardly six months before, he had spoken of paper money as “A nursery of tyranny, corruption and delusion; a veritable debauch of authority in delirium.” In one of his early speeches in the National Assembly he had called such money, when Anson covertly suggested its issue, “a loan to an armed robber,” and said of it: “that infamous word, paper money, ought to be banished from our language.” In his private letters written at this very time, which were revealed at a later period, he showed that he was fully aware of the dangers of inflation. But he yielded to the pressure: partly because he thought it important to sell the government lands rapidly to the people, and so develop speedily a large class of small landholders pledged to stand by the government which gave them their titles; partly, doubtless, from a love of immediate rather than of remote applause; and, generally, in a vague hope that the severe, inexorable laws of finance which had brought heavy punishments upon governments emitting an irredeemable currency in other lands, at other times, might in some way at this time, be warded off from France.[13]

The question was brought up by Montesquieu’s report on the 27th of August, 1790. This report favored, with evident reluctance, an additional issue of paper. It went on to declare that the original issue of four hundred millions, though opposed at the beginning, had proved successful; that assignats were economical, though they had dangers; and, as a climax, came the declaration: “We must save the country.”[14]

Upon this report Mirabeau then made one of his most powerful speeches. He confessed that he had at first feared the issue of assignats, but that he now dared urge it; that experience had shown the issue of paper money most serviceable; that the report proved the first issue of assignats a success; that public affairs had come out of distress; that ruin had been averted and credit established. He then argued that there was a difference between paper money of the recent issue and that from which the nation had suffered so much in John Law’s time; he declared that the French nation had now become enlightened and he added, “Deceptive subtleties can no longer mislead patriots and men of sense in this matter.” He then went on to say: “We must accomplish that which we have begun,” and declared that there must be one more large issue of paper, guaranteed by the national lands and by the good faith of the French nation. To show how practical the system was he insisted that just as soon as paper money should become too abundant it would be absorbed in rapid purchases of national lands; and he made a very striking comparison between this self- adjusting, self-converting system and the rains descending in showers upon the earth, then in swelling rivers discharged into the sea, then drawn up in vapor and finally scattered over the earth again in rapidly fertilizing showers. He predicted that the members would be surprised at the astonishing success of this paper money and that there would be none too much of it.

His theory grew by what it fed upon,–as the paper-money theory has generally done. Toward the close, in a burst of eloquence, he suggested that assignats be created to an amount sufficient to cover the national debt, and that all the national lands be exposed for sale immediately, predicting that thus prosperity would return to the nation and that an classes would find this additional issue of paper money a blessing.[15]

This speech was frequently interrupted by applause; a unanimous vote ordered it printed, and copies were spread throughout France. The impulse given by it permeated all subsequent discussion; Gouy arose and proposed to liquidate the national debt of twenty-four hundred millions,–to use his own words–“by one single operation, grand, simple, magnificent.”[16] This “operation” was to be the emission of twenty-four hundred millions in legal tender notes, and a law that specie should not be accepted in purchasing national lands. His demagogy bloomed forth magnificently. He advocated an appeal to the people, who, to use his flattering expression, “ought alone to give the law in a matter so interesting.” The newspapers of the period, in reporting his speech, noted it with the very significant remark, “This discourse was loudly applauded.”

To him replied Brillat-Savarin. He called attention to the depreciation of assignats already felt. He tried to make the Assembly see that natural laws work as inexorably in France as elsewhere; he predicted that if this new issue were made there would come a depreciation of thirty per cent. Singular, that the man who so fearlessly stood against this tide of unreason has left to the world simply a reputation as the most brilliant cook that ever existed! He was followed by the Abbe Goutes, who declared,–what seems grotesque to those who have read the history of an irredeemable paper currency in any country–that new issues of paper money “will supply a circulating medium which will protect public morals from corruption.”[17]

Into this debate was brought a report by Necker. He was not, indeed, the great statesman whom France especially needed at this time, of all times. He did not recognize the fact that the nation was entering a great revolution, but he could and did see that, come what might, there were simple principles of finance which must be adhered to. Most earnestly, therefore, he endeavored to dissuade the Assembly from the proposed issue; suggesting that other means could be found for accomplishing the result, and he predicted terrible evils. But the current was running too fast. The only result was that Necker was spurned as a man of the past; he sent in his resignation and left France forever.[18] The paper-money demagogues shouted for joy at his departure; their chorus rang through the journalism of the time. No words could express their contempt for a man who was unable to see the advantages of filling the treasury with the issues of a printing press. Marat, Hebert, Camille Desmoulins and the whole mass of demagogues so soon to follow them to the guillotine were especially jubilant.[19]

Continuing the debate, Rewbell attacked Necker, saying that the assignats were not at par because there were not yet enough of them; he insisted that payments for public lands be received in assignats alone; and suggested that the church bells of the kingdom be melted down into small money. Le Brun attacked the whole scheme in the Assembly, as he had done in the Committee, declaring that the proposal, instead of relieving the nation, would wreck it. The papers of the time very significantly say that at this there arose many murmurs. Chabroud came to the rescue. He said that the issue of assignats would relieve the distress of the people and he presented very neatly the new theory of paper money and its basis in the following words: “The earth is the source of value; you cannot distribute the earth in a circulating value, but this paper becomes representative of that value and it is evident that the creditors of the nation will not be injured by taking it.” On the other hand, appeared in the leading paper, the “Moniteur,” a very thoughtful article against paper money, which sums up all by saying, “It is, then, evident that all paper which cannot, at the will of the bearer, be converted into specie cannot discharge the functions of money.” This article goes on to cite Mirabeau’s former opinion in his letter to Cerutti, published in 1789,–the famous opinion of paper money as “a nursery of tyranny, corruption and delusion; a veritable debauch of authority in delirium.” Lablache, in the Assembly, quoted a saying that “paper money is the emetic of great states.”[20]

Boutidoux, resorting to phrasemaking, called the assignats _”un papier terre,”_ or “land converted into paper.” Boislandry answered vigorously and foretold evil results. Pamphlets continued to be issued,–among them, one so pungent that it was brought into the Assembly and read there,–the truth which it presented with great clearness being simply that doubling the quantity of money or substitutes for money in a nation simply increases prices, disturbs values, alarms capital, diminishes legitimate enterprise, and so decreases the demand both for products and for labor; that the only persons to be helped by it are the rich who have large debts to pay. This pamphlet was signed “A Friend of the People,” and was received with great applause by the thoughtful minority in the Assembly. Du Pont de Nemours, who had stood by Necker in the debate on the first issue of assignats, arose, avowed the pamphlet to be his, and said sturdily that he had always voted against the emission of irredeemable paper and always would.[21]

Far more important than any other argument against inflation was the speech of Talleyrand. He had been among the boldest and most radical French statesmen. He it was,–a former bishop,–who, more than any other, had carried the extreme measure of taking into the possession of the nation the great landed estates of the, Church, and he had supported the first issue of four hundred millions. But he now adopted a judicial tone–attempted to show to the Assembly the very simple truth that the effect of a second issue of assignats may be different from that of the first; that the first was evidently needed; that the second may be as injurious as the first was useful. He exhibited various weak points in the inflation fallacies and presented forcibly the trite truth that no laws and no decrees can keep large issues of irredeemable paper at par with specie.

In his speech occur these words: “You can, indeed, arrange it so that the people shall be forced to take a thousand livres in paper for a thousand livres in specie; but you can never arrange it so that a man shall be obliged to give a thousand livres in specie for a thousand livres in paper,–in that fact is embedded the entire question; and on account of that fact the whole system fails.”[22]

The nation at large now began to take part in the debate; thoughtful men saw that here was the turning Point between good and evil, that the nation stood at the parting of the ways. Most of the great commercial cities bestirred themselves and sent up remonstrances against the new emission,–twenty-five being opposed and seven in favor of it.

But eloquent theorists arose to glorify paper and among these, Royer, who on September 14, 1790, put forth a pamphlet entitled “Reflections of a patriotic Citizen on the issue of assignats,” in which he gave many specious reasons of the why the assignats could not be depressed, and spoke of the argument against them as “vile clamors of people bribed to affect public opinion.” He said to the National Assembly, “If it is necessary to create five thousand millions, and more, of the paper, decree such a creation gladly.” He, too, predicted, as many others had done, a time when gold was to lose all its value, since all exchanges would be made with this admirable, guaranteed paper, and therefore that coin would come out from the places where it was hoarded. He foretold prosperous times to France in case these great issues of paper were continued and declared these “the only means to insure happiness, glory and liberty to the French nation.” Speeches like this gave courage to a new swarm of theorists,–it began to be especially noted that men who had never shown any ability to make or increase fortunes for themselves abounded in brilliant plans for creating and increasing wealth for the country at large.

Greatest force of all, on September 27, 1790, came Mirabeau’s final speech. The most sober and conservative of his modern opponents speaks of its eloquence as “prodigious.” In this the great orator dwelt first on the political necessity involved, declaring that the most pressing need was to get the government lands into the hands of the people, and so to commit to the nation and against the old privileged classes the class of landholders thus created.

Through the whole course of his arguments there is one leading point enforced with all his eloquence and ingenuity–the excellence of the proposed currency, its stability and its security. He declares that, being based on the pledge of public lands and convertible into them, the notes are better secured than if redeemable in specie; that the precious metals are only employed in the secondary arts, while the French paper money represents the first and most real of all property, the source of all production, the land; that while other nations have been obliged to emit paper money, none have ever been so fortunate as the French nation, for the reason that none had ever before been able to give this landed security; that whoever takes French paper money has practically a mortgage to secure it,–and on landed property which can easily be sold to satisfy his claims, while other nations have been able only to give a vague claim on the entire nation. “And,” he ones, “I would rather have a mortgage on a garden than on a kingdom!”

Other arguments of his are more demagogical. He declares that the only interests affected will be those of bankers and capitalists, but that manufacturers will see prosperity restored to them. Some of his arguments seem almost puerile, as when he says, “If gold has been hoarded through timidity or malignity, the issue of paper will show that gold is not necessary, and it will then come forth.” But, as a whole, the speech was brilliant; it was often interrupted by applause; it settled the question. People did not stop to consider that it was the dashing speech of an orator and not the matured judgment of a financial expert; they did not see that calling Mirabeau or Talleyrand to advise upon a monetary policy, because they had shown boldness in danger and strength in conflict, was like summoning a prize-fighter to mend a watch.

In vain did Maury show that, while the first issues of John Law’s paper had brought prosperity, those that followed brought misery; in vain did he quote from a book published in John Law’s time, showing that Law was at first considered a patriot and friend of humanity; in vain did he hold up to the Assembly one of Law’s bills and appeal to their memories of the wretchedness brought upon France by them; in vain did Du Pont present a simple and really wise plan of substituting notes in the payment of the floating debt which should not form a part of the ordinary circulating medium; nothing could resist the eloquence of Mirabeau. Barnave, following, insisted that “Law’s paper was based upon the phantoms of the Mississippi; ours, upon the solid basis of ecclesiastical lands,” and he proved that the assignats could not depreciate further. Prudhomme’s newspaper poured contempt over gold as security for the currency, extolled real estate as the only true basis and was fervent in praise of the convertibility and self-adjusting features of the proposed scheme. In spite of all this plausibility and eloquence, a large minority stood firm to their earlier principles; but on the 29th of September, 1790, by a vote of 508 to 423, the deed was done; a bill was passed authorizing the issue of eight hundred millions of new assignats, but solemnly declaring that in no case should the entire amount put in circulation exceed twelve hundred millions. To make assurance doubly sure, it also provided that as fast as the assignats were paid into the treasury for land they should be burned, and thus a healthful contraction be constantly maintained. Unlike the first issue, these new notes were to bear no interest.[23]

Great were the plaudits of the nation at this relief. Among the multitudes of pamphlets expressing this joy which have come down to us the “Friend of the Revolution” is the most interesting. It begins as follows: “Citizens, the deed is done. The assignats are the keystone of the arch. It has just been happily put in position. Now I can announce to you that the Revolution is finished and there only remain one or two important questions. All the rest is but a matter of detail which cannot deprive us any longer of the pleasure of admiring this important work in its entirety. The provinces and the commercial cities which were at first alarmed at the proposal to issue so much paper money now send expressions of their thanks; specie is coming out to be joined with paper money. Foreigners come to us from all parts of Europe to seek their happiness under laws which they admire; and soon France, enriched by her new property and by the national industry which is preparing for fruitfulness, will demand still another creation of paper money.”

France was now fully committed to a policy of inflation; and, if there had been any question of this before, all doubts were removed now by various acts very significant as show- ing the exceeding difficulty of stopping a nation once in the full tide of a depreciating currency. The National Assembly had from the first shown an amazing liberality to all sorts of enterprises, wise or foolish, which were urged “for the good of the people.” As a result of these and other largesses the old cry of the “lack of a circulating medium” broke forth again; and especially loud were the clamors for more small bills. The cheaper currency had largely driven out the dearer; paper had caused small silver and copper money mainly to disappear; all sorts of notes of hand, circulating under the name of “confidence bills,” flooded France–sixty-three kinds in Paris alone. This unguaranteed currency caused endless confusion and fraud. Different districts of France began to issue their own assignats in small denominations, and this action stirred the National Assembly to evade the solemn pledge that the circulation should not go above twelve hundred millions and that all assignats returned to the treasury for lands should immediately be burned.[24] Within a short time there had been received into the treasury for lands one hundred and sixty million livres in paper. By the terms of the previous acts this amount of paper ought to have been retired. Instead of this, under the plea of necessity, the greater part of it was reissued in the form of small notes.

There was, indeed, much excuse for new issues of small notes, for, under the theory that an issue of smaller notes would drive silver out of circulation, the smallest authorized assignat was for fifty livres. To supply silver and copper and hold it in circulation everything was tried. Citizens had been spurred on by law to send their silverware and jewels to the mint. Even the king sent his silver and gold plate, and the churches and convents were required by law to send to the government melting pot all silver and gold vessels not absolutely necessary for public worship. For copper money the church bells were melted down. But silver and even copper continued to become more and more scarce. In the midst of all this, various juggleries were tried, and in November, 1790, the Assembly decreed a single standard of coinage, the chosen metal being silver, and the ratio between the two precious metals was changed from 15 1/2 to 1, to 14 1/2 to 1–but all in vain. It was found necessary to issue the dreaded small paper, and a beginning was made by issuing one hundred millions in notes of five francs, and, ere long, obedient to the universal clamor, there were issued parchment notes for various small amounts down to a single sou.[25]

Yet each of these issues, great or small, was but as a drop of cold water to a parched throat. Although there was already a rise in prices which showed that the amount needed for circulation had been exceeded, the cry for “more circulating medium” was continued. The pressure for new issues became stronger and stronger. The Parisian populace and the Jacobin Club were especially loud in their demands for them; and, a few months later, on June 19, 1791, with few speeches, in a silence very ominous, a new issue was made of six hundred millions more;–less than nine months after the former great issue, with its solemn pledges to keep down the amount in circulation. With the exception of a few thoughtful men, the whole nation again sang paeans.[26]

In this comparative ease of new issues is seen the action of a law in finance as certain as the working of a similar law in natural philosophy. If a material body fall from a height its velocity is accelerated, by a well-known law, in a constantly increasing ratio: so in issues of irredeemable currency, in obedience to the theories of a legislative body or of the people at large, there is a natural law of rapidly increasing emission and depreciation. The first inflation bills were passed with great difficulty, after very sturdy resistance and by a majority of a few score out of nearly a thousand votes; but we observe now that new inflation measures were passed more and more easily and we shall have occasion to see the working of this same law in a more striking degree as this history develops itself.

During the various stages of this debate there cropped up a doctrine old and ominous. It was the same which appeared toward the end of the nineteenth century in the United States during what became known as the “greenback craze” and the free “silver craze.” In France it had been refuted, a generation before the Revolution, by Turgot, just as brilliantly as it was met a hundred years later in the United States by James A. Garfield and his compeers. This was the doctrine that all currency, whether gold, paper, leather or any other material, derives its efficiency from the official stamp it bears, and that, this being the case, a government may relieve itself of its debts and make itself rich and prosperous simply by means of a printing press:–fundamentally the theory which underlay the later American doctrine of “fiat money.”

There came mutterings and finally speeches in the Jacobin Club, in the Assembly and in newspaper articles and pamphlets throughout the country, taking this doctrine for granted. These could hardly affect thinking men who bore in mind the calamities brought upon the whole people, and especially upon the poorer classes, by this same theory as put in practice by John Law, or as refuted by Turgot, but it served to swell the popular chorus in favor of the issue of more assignats and plenty of them.[27]

The great majority of Frenchmen now became desperate optimists, declaring that inflation is prosperity. Throughout France there came temporary good feeling. The nation was becoming inebriated with paper money. The good feeling was that of a drunkard just after his draught; and it is to be noted as a simple historical fact, corresponding to a physiological fact, that, as draughts of paper money came faster the successive periods of good feeling grew shorter.

Various bad signs began to appear. Immediately after each new issue came a marked depreciation; curious it is to note the general reluctance to assign the right reason. The decline in the purchasing power of paper money was in obedience to the simplest laws in economics, but France had now gone beyond her thoughtful statesmen and taken refuge in unwavering optimism, giving any explanation of the new difficulties rather than the right one. A leading member of the Assembly insisted, in an elaborate speech, that the cause of depreciation was simply the want of knowledge and of confidence among the rural population and he suggested means of enlightening them. La Rochefoucauld proposed to issue an address to the people showing the goodness of the currency and the absurdity of preferring coin. The address was unanimously voted. As well might they have attempted to show that a beverage made by mixing a quart of wine and two quarts of water would possess all the exhilarating quality of the original, undiluted liquid.

Attention was aroused by another menacing fact;–specie disappeared more and more. The explanations of this fact also displayed wonderful ingenuity in finding false reasons and in evading the true one. A very common explanation was indicated in Prudhomme’s newspaper, “Les Revolutions de Paris,” of January 17, 1791, which declared that coin “will keep rising until the people shall have hanged a broker.” Another popular theory was that the Bourbon family were, in some mysterious way, drawing off all solid money to the chief centers of their intrigues in Germany. Comic and, at the same time, pathetic, were evidences of the wide-spread idea that if only a goodly number of people engaged in trade were hanged, the par value of the assignats would be restored.

Still another favorite idea was that British emissaries were in the midst of the people, instilling notions hostile to paper. Great efforts were made to find these emissaries and more than one innocent person experienced the popular wrath under the supposition that he was engaged in raising gold and depressing paper. Even Talleyrand, shrewd as he was, insisted that the cause was simply that the imports were too great and the exports too little.[28] As well might he explain that fact that, when oil is mingled with water, water sinks to the bottom, by saying that this is because the oil rises to the top. This disappearance of specie was the result of a natural law as simple and as sure in its action as gravitation; the superior currency had been withdrawn because an inferior currency could be used.[29] Some efforts were made to remedy this. In the municipality of Quilleboeuf a considerable amount in specie having been found in the possession of a citizen, the money was seized and sent to the Assembly. The people of that town treated this hoarded gold as the result of unpatriotic wickedness or madness, instead of seeing that it was but the sure result of a law working in every land and time, when certain causes are present. Marat followed out this theory by asserting that death was the proper penalty for persons who thus hid their money.

Still another troublesome fact began now to appear. Though paper money had increased in amount, prosperity had steadily diminished. In spite of all the paper issues, commercial activity grew more and more spasmodic. Enterprise was chilled and business became more and more stagnant. Mirabeau, in his speech which decided the second great issue of paper, had insisted that, though bankers might suffer, this issue would be of great service to manufacturers and restore prosperity to them and their workmen. The latter were for a time deluded, but were at last rudely awakened from this delusion. The plenty of currency had at first stimulated production and created a great activity in manufactures, but soon the markets were glutted and the demand was diminished. In spite of the wretched financial policy of years gone by, and especially in spite of the Revocation of the Edict of Nantes, by which religious bigotry had driven out of the kingdom thousands of its most skillful Protestant workmen, the manufactures of France had before the Revolution come into full bloom. In the finer woolen goods, in silk and satin fabrics of all sorts, in choice pottery and porcelain, in manufactures of iron, steel, and copper, they had again taken their old leading place upon the Continent. All the previous changes had, at the worst, done no more than to inflict a momentary check on this highly developed system of manufactures. But what the bigotry of Louis XIV and the shiftlessness of Louis XV could not do in nearly a century, was accomplished by this tampering with the currency in a few months. One manufactory after another stopped. At one town, Lodève, five thousand workmen were discharged from the cloth manufactories. Every cause except the right one was assigned for this. Heavy duties were put upon foreign goods; everything that tariffs and custom-houses could do was done. Still the great manufactories of Normandy were closed, those of the rest of the kingdom speedily followed, and vast numbers of workmen in all parts of the country were thrown out of employment.[30] Nor was this the case with the home demand alone. The foreign demand, which at first had been stimulated, soon fell off. In no way can this be better stated than by one of the most thoughtful historians of modern times, who says, “It is true that at first the assignats gave the same impulse to business in the city as in the country, but the apparent improvement had no firm foundation, even in the towns. Whenever a great quantity of paper money is suddenly issued we invariably see a rapid increase of trade. The great quantity of the circulating medium sets in motion all the energies of commerce and manufactures; capital for investment is more easily found than usual and trade perpetually receives fresh nutriment. If this paper represents real credit, founded upon order and legal security, from which it can derive a firm and lasting value, such a movement may be the starting point of a great and widely-extended prosperity, as, for instance, a splendid improvement in English agriculture was undoubtedly owing to the emancipation of the country bankers. If on the contrary, the new paper is of precarious value, as was clearly seen to be the case with the French assignats as early as February, 1791, it can confer no lasting benefits. For the moment, perhaps, business receives an impulse, all the more violent because every one endeavors to invest his doubtful paper in buildings, machines and goods, which, under all circumstances, retain some intrinsic value. Such a movement was witnessed in France in 1791, and from every quarter there came satisfactory reports of the activity of manufactures.”

“But, for the moment, the French manufacturers derived great advantage from this state of things. As their products could be so cheaply paid for, orders poured in from foreign countries to such a degree that it was often difficult for the manufacturers to satisfy their customers. It is easy to see that prosperity of this kind must very soon find its limit. . . . When a further fall in the assignats took place this prosperity would necessarily collapse, and be succeeded by a crisis all the more destructive the more deeply men had engaged in speculation under the influence of the first favorable prospects.”[31]

Thus came a collapse in manufacturing and commerce, just as it had come previously in France: just as it came at various periods in Austria, Russia, America, and in all countries where men have tried to build up prosperity on irredeemable paper.[32]

All this breaking down of the manufactures and commerce of the nation made fearful inroads on the greater fortunes; but upon the lesser, and upon the little properties of the masses of the nation who relied upon their labor, it pressed with intense severity. The capitalist could put his surplus paper money into the government lands and await results; but the men who needed their money from day to day suffered the worst of the misery. Still another difficulty appeared. There had come a complete uncertainty as to the future. Long before the close of 1791 no one knew whether a piece of paper money representing a hundred livres would, a month later, have a purchasing power of ninety or eighty or sixty livres. The result was that capitalists feared to embark their means in business. Enterprise received a mortal blow. Demand for labor was still further diminished; and here came a new cause of calamity: for this uncertainty withered all far-reaching undertakings. The business of France dwindled into a mere living from hand to mouth. This state of things, too, while it bore heavily upon the moneyed classes, was still more ruinous to those in moderate and, most of all, to those in straitened circumstances. With the masses of the people, the purchase of every article of supply became a speculation–a speculation in which the professional speculator had an immense advantage over the ordinary buyer. Says the most brilliant of apologists for French revolutionary statesmanship, “Commerce was dead; betting took its place.”[33]

Nor was there any compensating advantage to the mercantile classes. The merchant was forced to add to his ordinary profit a sum sufficient to cover probable or possible fluctuations in value, and while prices of products thus went higher, the wages of labor, owing to the number of workmen who were thrown out of employment, went lower.

But these evils, though great, were small compared to those far more deep-seated signs of disease which now showed themselves throughout the country. One of these was the _obliteration of thrift_ from the minds of the French people. The French are naturally thrifty; but, with such masses of money and with such uncertainty as to its future value, the ordinary motives for saving and care diminished, And a loose luxury spread throughout the country. A still worse outgrowth was the increase of speculation and gambling. With the plethora of paper currency in 1791 appeared the first evidences of that cancerous disease which always follows large issues of irredeemable currency,–a disease more permanently injurious to a nation than war, pestilence or famine. For at the great metropolitan centers grew a luxurious, speculative, stock-gambling body, which, like a malignant tumor, absorbed into itself the strength of the nation and sent out its cancerous fibres to the remotest hamlets. At these city centers abundant wealth seemed to be piled up: in the country at, large there grew a dislike of steady labor and a contempt for moderate gains and simple living. In a pamphlet published in May, 1791, we see how, in regard to this also, public opinion was blinded. The author calls attention to the increase of gambling in values of all sorts in these words: “What shall I say of the stock-jobbing, as frightful as it is scandalous, which goes on in Paris under the very eyes of our legislators,–a most terrible evil, yet, under the present circumstances,–necessary?” The author also speaks of these stock-gamblers as using the most insidious means to influence public opinion in favor of their measures; and then proposes, seriously, a change in various matters of detail, thinking that this would prove a sufficient remedy for an evil which had its roots far down in the whole system of irredeemable currency. As well might a physician prescribe a pimple wash for a diseased liver.[34]

Now began to be seen more plainly some of the many ways in which an inflation policy robs the working class. As these knots of plotting schemers at the city centers were becoming bloated with sudden wealth, the producing classes of the country, though having in their possession more and more currency, grew lean. In the schemes and speculations put forth by stock-jobbers and stimulated by the printing of more currency, multitudes of small fortunes were absorbed and lost while a few swollen fortunes were rapidly aggregated in the larger cities. This crippled a large class in the country districts, which had employed a great number of workmen.

In the leading French cities now arose a luxury and license which was a greater evil even than the plundering which ministered to it. In the country the gambling spirit spread more and more. Says the same thoughtful historian whom I have already quoted: “What a prospect for a country when its rural population was changed into a great band of gamblers!”[35]

Nor was this reckless and corrupt spirit confined to business men; it began to break out in official circles, and public men who, a few years before, had been thought above all possibility of taint, became luxurious, reckless, cynical and finally corrupt. Mirabeau, himself, who, not many months previous, had risked imprisonment and even death to establish constitutional government, was now–at this very time–secretly receiving heavy bribes. When, at the downfall of the monarchy a few years later, the famous iron chest of the Tuileries was opened, there were found evidences that, in this carnival of inflation and corruption, he had been a regularly paid servant of the Royal court.[36] The artful plundering of the people at large was bad enough, but worse still was this growing corruption in official and legislative circles. Out of the speculating and gambling of the inflation period grew luxury, and, out of this, corruption. It grew as naturally as a fungus on a muck heap. It was first felt in business operations, but soon began to be seen in the legislative body and in journalism. Mirabeau was, by no means, the only example. Such members of the legislative body as Jullien of Toulouse, Delaunay of Angers, Fabre d’Eglantine and their disciples, were among the most noxious of those conspiring by legislative action to raise and depress securities for stock-jobbing purposes. Bribery of legislators followed as a matter of course, Delaunay, Jullien and Chabot accepted a bribe of five hundred thousand livres for aiding legislation calculated to promote the purposes of certain stock-jobbers. It is some comfort to know that nearly all concerned were guillotined for it.[37]

It is true that the number of these corrupt legislators was small, far less than alarmists led the nation to suppose, but there were enough to cause wide-spread distrust, cynicism and want of faith in any patriotism or any virtue.


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Even worse than this was the breaking down of the morals of the country at large, resulting from the sudden building up of ostentatious wealth in a few large cities, and from the gambling, speculative spirit spreading from these to the small towns and rural districts. From this was developed an even more disgraceful result,–the decay of a true sense of national good faith. The patriotism which the fear of the absolute monarchy, the machinations of the court party, the menaces of the army and the threats of all monarchical Europe had been unable to shake was gradually disintegrated by this same speculative, stock-jobbing habit fostered by the superabundant currency. At the outset, in the discussions preliminary to the first issue of paper money, Mirabeau and others who had favored it had insisted that patriotism as well as an enlightened self-interest, would lead the people to keep up the value of paper money. The very opposite of this was now revealed, for there appeared, as another outgrowth of this disease, what has always been seen under similar circumstances. It is a result of previous, and a cause of future evils. This outgrowth was a vast debtor class in the nation, directly interested in the depreciation of the currency in which they were to pay their debts. The nucleus of this class was formed by those who had purchased the church lands from the government. Only small payments down had been required and the remainder was to be paid in deferred installments: an indebtedness of a multitude of people had thus been created to the amount of hundreds of millions. This body of debtors soon saw, of course, that their interest was to depreciate the currency in which their debts were to be paid; and these were speedily joined by a far more influential class;–by that class whose speculative tendencies had been stimulated by the abundance of paper money, and who had gone largely into debt, looking for a rise in nominal values. Soon demagogues of the viler sort in the political clubs began to pander to it; a little later important persons in this debtor class were to be found intriguing in the Assembly–first in its seats and later in more conspicuous places of public trust. Before long, the debtor class became a powerful body extending through all ranks of society. From the stock-gambler who sat in the Assembly to the small land speculator in the rural districts; from the sleek inventor of _canards_ on the Paris Exchange to the lying stock-jobber in the market town, all pressed vigorously for new issues of paper; all were apparently able to demonstrate to the people that in new issues of paper lay the only chance for national prosperity.

This great debtor class, relying on the multitude who could be approached by superficial arguments, soon gained control. Strange as it might seem to those who have not watched the same causes at work at a previous period in France and at various times in other countries, while every issue of paper money really made matters worse, a superstition gained ground among the people at large that, if only _enough_ paper money were issued and were more cunningly handled the poor would be made rich. Henceforth, all opposition was futile. In December, 1791, a report was made in the Legislative Assembly in favor of yet another great issue of three hundred millions more of paper money. In regard to this report Cambon said that more money was needed but asked, “Will you, in a moment when stock-jobbing is carried on with such fury, give it new power by adding so much more to the circulation?” But such high considerations were now little regarded. Dorisy declared, “There is not enough money yet in circulation; if there were more the sales of national lands would be more rapid.” And the official report of his speech states that these words were applauded.

Dorisy then went on to insist that the government lands were worth at least thirty-five hundred million livres and said: “Why should members ascend the tribunal and disquiet France? Fear nothing; your currency reposes upon a sound mortgage.” Then followed a glorification of the patriotism of the French people, which, he asserted, would carry the nation through all its difficulties.

Becquet, speaking next, declared that “The circulation is becoming more rare every day.”

On December 17, 1791, a new issue was ordered, making in all twenty-one hundred millions authorized. Coupled with this was the declaration that the total amount in actual circulation should never reach more than sixteen hundred millions. Before this issue the value of the 100 livres note had fallen at Paris to about 80 livres;[38] immediately afterward it fell to about 68 livres. What limitations of the currency were worth may be judged from the fact that not only had the declaration made hardly a year before, limiting the amount in circulation to twelve hundred millions, been violated, but the declaration, made hardly a month previous, in which the Assembly had as solemnly limited the amount of circulation to fourteen hundred millions, had also been repudiated.

The evils which we have already seen arising from the earlier issues were now aggravated; but the most curious thing evolved out of all this chaos was a new system of political economy. In speeches, newspapers and pamphlets about this time, we begin to find it declared that, after all, a depreciated currency is a blessing; that gold and silver form an unsatisfactory standard for measuring values: that it is a good thing to have a currency that will not go out of the kingdom and which separates France from other nations: that thus shall manufacturers be encouraged; that commerce with other nations may be a curse, and hindrance thereto may be a blessing; that the laws of political economy however applicable in other times, are not applicable to this particular period, and, however operative in other nations, are not now so in France; that the ordinary rules of political economy are perhaps suited to the minions of despotism but not to the free and enlightened inhabitants of France at the close of the eighteenth century; that the whole state of present things, so far from being an evil is a blessing. All these ideas, and others quite as striking, were brought to the surface in the debates on the various new issues.[39]

Within four months came another report to the Assembly as ingenious as those preceding. It declared: “Your committee are thoroughly persuaded that the amount of the circulating medium before the Revolution was greater than that of the assignats today: but at that time the money circulated slowly and now it passes rapidly so that one thousand million assignats do the work of two thousand millions of specie.” The report foretells further increase in prices, but by some curious jugglery reaches a conclusion favorable to further inflation. Despite these encouragements the assignats nominally worth 100 livres had fallen, at the beginning of February, 1792, to about 60 livres, and during that month fell to 53 livres.[40]

In March, Clavière became minister of finance. He was especially proud of his share in the invention and advocacy of the assignats, and now pressed their creation more vigorously than ever, and on April 30th, of the same year, came the fifth great issue of paper money, amounting to three hundred millions: at about the same time Cambon sneered ominously at public creditors as “rich people, old financiers and bankers.” Soon payment was suspended on dues to public creditors for all amounts exceeding ten thousand francs.

This was hailed by many as a measure in the interests of the poorer classes of people, but the result was that it injured them most of all. Henceforward, until the end of this history, capital was quietly taken from labor and locked up in all the ways that financial ingenuity could devise. All that saved thousands of laborers in France from starvation was that they were drafted off into the army and sent to be killed on foreign battlefields.

On the last day of July, 1792, came another brilliant report from Fouquet, showing that the total amount of currency already issued was about twenty-four hundred millions, but claiming that the national lands were worth a little more than this sum. A decree was now passed issuing three hundred millions more. By this the prices of everything were again enhanced save one thing, and that one thing was labor. Strange as it may at first appear, while the depreciation of the currency had raised all products enormously in price, the stoppage of so many manufactories and the withdrawal of capital caused wages in the summer of 1792, after all the inflation, to be as small as they had been four years before–viz., fifteen sous per day. No more striking example can be seen of the truth uttered by Daniel Webster, that “of all the contrivances for cheating the laboring classes of mankind, none has been more effective than that which deludes them with paper-money.”[41]

Issue after issue followed at intervals of a few months, until, on December 14, 1792, we have an official statement to the effect that thirty-five hundred millions had been put forth, of which six hundred millions had been burned, leaving in circulation twenty-eight hundred millions.

When it is remembered that there was little business to do and that the purchasing power of the livre or franc, when judged by the staple products of the country, was equal to about half the present purchasing power of our own dollar, it will be seen into what evils France had drifted. As the mania for paper money ran its course, even the _sous_, obtained by melting down the church bells, were more and more driven out of circulation and more and more parchment notes from twenty _four_ to five were issued, and at last pieces of one sou, of half a sou and even of one-quarter of a sou were put in circulation.[42]

But now another source of wealth was opened to the nation. There came a confiscation of the large estates of landed proprietors who had fled the country. An estimate in 1793 made the value of these estates three billions of francs. As a consequence, the issues of paper money were continued in increased amounts, on the old theory that they were guaranteed by the solemn pledge of these lands belonging to the state. Under the Legislative Assembly through the year 1792 new issues were made virtually every month, so that at the end of January, 1793, it was more and more realized that the paper money actually in circulation amounted close upon three thousand millions of francs. All this had been issued publicly, in open sessions of the National and Legislative Assemblies; but now under the National Convention, the two Committees of Public Safety and of Finance began to decree new issues privately, in secret session.

As a result, the issues became larger still, and four hundred workmen were added to those previously engaged in furnishing this paper money, and these were so pressed with work from six o’clock in the morning until eight in the evening that they struck for higher wages and were successful.[43]

The consequences of these overissues now began to be more painfully evident to the people at large. Articles of common consumption became enormously dear and prices were constantly rising. Orators in the Legislative Assembly, clubs, local meetings and elsewhere now endeavored to enlighten people by assigning every reason for this depreciation save the true one. They declaimed against the corruption of the ministry, the want of patriotism among the Moderates, the intrigues of the emigrant nobles, the hard-heartedness of the rich, the monopolizing spirit of the merchants, the perversity of the shopkeepers,—each and all of these as causes of the difficulty.[44]

This decline in the government paper was at first somewhat masked by fluctuations. For at various times the value of the currency rose. The victory of Jemappes and the general success of the French army against the invaders, with the additional security offered by new confiscations of land, caused, in November, 1792, an appreciation in the value of the currency; the franc had stood at 57 and it rose to about 69; but the downward tendency was soon resumed and in September, 1793, the assignats had sunk below 30. Then sundry new victories and coruscations of oratory gave momentary confidence so that in December, 1793, they rose above 50. But despite these fluctuations the downward tendency soon became more rapid than ever.[45]

The washerwomen of Paris, finding soap so dear that they could hardly purchase it, insisted that all the merchants who were endeavoring to save something of their little property by refusing to sell their goods for the wretched currency with which France was flooded, should be punished with death; the women of the markets and the hangers-on of the Jacobin Club called loudly for a law “to equalize the value of paper money and silver coin.” It was also demanded that a tax be laid especially on the rich, to the amount of four hundred million francs, to buy bread. Marat declared loudly that the people, by hanging shopkeepers and plundering stores, could easily remove the trouble. The result was that on the 28th of February, 1793, at eight o’clock in the evening, a mob of men and women in disguise began plundering the stores and shops of Paris. At first they demanded only bread; soon they insisted on coffee and rice and sugar; at last they seized everything on which they could lay their hands–cloth, clothing, groceries and luxuries of every kind. Two hundred such places were plundered. This was endured for six hours and finally order was restored only by a grant of seven million francs to buy off the mob. The new political economy was beginning to bear, its fruits luxuriantly. A gaudy growth of it appeared at the City Hall of Paris when, in response to the complaints of the plundered merchants, Roux declared, in the midst of great applause, that “shopkeepers were only giving back to the people what they had hitherto robbed them of.”

The mob having thus been bought off by concessions and appeased by oratory, the government gained time to think, and now came a series of amazing expedients,–and yet all perfectly logical.

Three of these have gained in French history an evil pre-eminence, and first of the three was the Forced Loan.

In view of the fact that the well-to-do citizens were thought to be lukewarm in their support of the politicians controlling the country, various demagogues in the National Convention, which had now succeeded the National, Constituent and Legislative Assemblies, found ample matter for denunciations long and loud. The result outside the Convention was increased activity of the guillotine; the results inside were new measures against all who had money, and on June 22, 1793, the Convention determined that there should be a Forced Loan, secured on the confiscated lands of the emigrants and levied upon all married men with incomes of ten thousand francs, and upon all unmarried men with incomes of six thousand francs. It was calculated that these would bring into the treasury a thousand millions of francs. But a difficulty was found. So many of the rich had lied or had concealed their wealth that only a fifth of the sum required could be raised, and therefore a law was soon passed which levied forced loans upon incomes as low as one thousand, francs,–or, say, two hundred dollars of American money. This tax was made progressive. On the smaller proprietors it was fixed at one-tenth and on the larger, that is, on all incomes above nine thousand francs, it was made one-half of the entire income. Little if any provision was made for the repayment of this loan but the certificates might be used for purchasing the confiscated real estate of the church and of the nobility.[46]

But if this first expedient shows how naturally a “fiat” money system runs into despotism, the next is no less instructive in showing how easily it becomes repudiation and dishonor.

As we have seen, the first issue of the assignats,–made by the National Assembly, bore a portrait of the king; but on the various issues after the establishment of a republic this emblem had been discarded. This change led to a difference in value between the earlier and the later paper money. The wild follies of fanatics and demagogues had led to an increasing belief that the existing state of things could not last; that the Bourbons must ere long return; that in such case, while a new monarch would repudiate all the vast mass of the later paper issued by the Republic, he would recognize that first issue bearing the face and therefore the guarantee of the king. So it was that this first issue came to bear a higher value than those of later date. To meet this condition of things it was now proposed to repudiate an that earlier issue. In vain did sundry more thoughtful members of the Convention plead that this paper money, amounting to five hundred and fifty-eight millions of francs, bore the solemn guarantee of the nation, as well as of the king; the current was irresistible. All that Cambon, the great leader of finance at that time, could secure was a clause claiming to protect the poor, to the effect that this demonetization should not extend to notes below a hundred francs in value; and it was also agreed that any of the notes, large or small, might be received in payment of taxes and for the confiscated property of the clergy and nobility. To all the arguments advanced against this breach of the national faith Danton, then at the height of his power, simply declared that only aristocrats could favor notes bearing the royal portrait, and gave forth his famous utterance: “Imitate Nature, which watches over the preservation of the race but has no regard for individuals.” The decree was passed on the 31st of July, 1793, yet its futility was apparent in less than two months, when the Convention decreed that there should be issued two thousand millions of francs more in assignats between the values of ten _sous_ and four hundred francs, and when, before the end of the year, five hundred millions more were authorized.[47]

The third outgrowth of the vast issue of fiat money was the Maximum. As far back as November, 1792, the Terrorist associate of Robespierre, St. Just, in view of the steady rise in prices of the necessaries of life, had proposed a scheme by which these prices should be established by law, at a rate proportionate to the wages of the working classes. This plan lingered in men’s minds, taking shape in various resolutions and decrees until the whole culminated on September 29, 1793, in the Law of the Maximum.

While all this legislation was high-handed, it was not careless. Even statesmen of the greatest strength, having once been drawn into this flood, were borne on into excesses which, a little earlier, would have appalled them. Committees of experts were appointed to study the whole subject of prices, and at last there were adopted the great “four rules” which seemed to statesmen of that time a masterly solution of the whole difficulty.[48]

First, the price of each article of necessity was to be fixed at one and one-third its price in 1790. Secondly, all transportation was to be added at a fixed rate per league. Thirdly, five per cent was to be added for the profit of the wholesaler. _Fourthly_, ten per cent was to be added for the profit of the retailer. Nothing could look more reasonable. Great was the jubilation. The report was presented and supported by Barrère,–“the tiger monkey,”–then in all the glory of his great orations: now best known from his portrait by Macaulay. Nothing could withstand Barrère’s eloquence. He insisted that France had been suffering from a “Monarchical commerce which only sought wealth,” while what she needed and what she was now to receive was a “Republican commerce–a commerce of moderate profits and virtuous.” He exulted in the fact that “France alone enjoys such a commerce,–that it exists in no other nation.” He poured contempt over political economy as “that science which quacks have corrupted, which pedants have obscured and which academicians have depreciated.” France, he said, has something better, and he declared in conclusion, “The needs of the people will no longer be spied upon in order that the commercial classes may arbitrarily take advantage.”[49]

The first result of the Maximum was that every means was taken to evade the fixed price imposed, and the farmers brought in as little produce as they possibly could. This increased the scarcity, and the people of the large cities were put on an allowance. Tickets were issued authorizing the bearer to obtain at the official prices a certain amount of bread or sugar or soap or wood or coal to cover immediate necessities.[50]

But it was found that the Maximum, with its divinely revealed four rules, could not be made to work well–even by the shrewdest devices. In the greater part of France it could not be enforced. As to merchandise of foreign origin or merchandise into which any foreign product entered, the war had raised it far above the price allowed under the first rule, namely, the price of 1790, with an addition of one-third. Shopkeepers therefore could not sell such goods without ruin. The result was that very many went out of business and the remainder forced buyers to pay enormous charges under the very natural excuse that the seller risked his life in trading at all. That this excuse was valid is easily seen by the daily lists of those condemned to the guillotine, in which not infrequently figure the names of men charged with violating the Maximum laws. Manufactures were very generally crippled and frequently destroyed, and agriculture was fearfully depressed. To detect goods concealed by farmers and shopkeepers, a spy system was established with a reward to the informer of one-third of the value of the goods discovered. To spread terror, the Criminal Tribunal at Strassburg was ordered to destroy the dwelling of any one found guilty of selling goods above the price set by law. The farmer often found that he could not raise his products at anything like the price required by the new law, and when he tried to hold back his crops or cattle, alleging that he could not afford to sell them at the prices fixed by law, they were frequently taken from him by force and he was fortunate if paid even in the depreciated fiat money–fortunate, indeed, if he finally escaped with his life.[51]

Involved in all these perplexities, the Convention tried to cut the Gordian knot. It decreed that any person selling gold or silver coin, or making any difference in any transaction between paper and specie, should be imprisoned in irons for six years:–that any one who refused to accept a payment in assignats, or accepted assignats at a discount, should pay a fine of three thousand francs; and that any one committing this crime a second time should pay a fine of six thousand francs and suffer imprisonment twenty years in irons. Later, on the 8th of September, 1793, the penalty for such offences was made death, with confiscation of the criminal’s property, and so reward was offered to any person informing the authorities regarding any such criminal transaction. To reach the climax of ferocity, the Convention decreed, in May, 1794, that the death penalty should be inflicted on any person convicted of “having asked, be- fore a bargain was concluded, in what money payment was to be made.” Nor was this all. The great finance minister, Cambon, soon saw that the worst enemies of his policy were gold and silver. Therefore it was that, under his lead, the Convention closed the Exchange and finally, on November 13, 1793, under terrifying penalties, suppressed all commerce in the precious metals. About a year later came the abolition of the Maximum itself.[52]

It is easily seen that these Maximum laws were perfectly logical. Whenever any nation intrusts to its legislators the issue of a currency not based on the idea of redemption in standard coin recognized in the commerce of civilized nations, it intrusts to them the power to raise or depress the value of every article in the possession of every citizen. Louis XIV had claimed that all property in Prance was his own, and that what private persons held was as much his as if it were in his coffers. But even this assumption is exceeded by the confiscating power exercised in a country, where, instead of leaving values to be measured by a standard common to the whole world, they are left to be depressed or raised at the whim, caprice or interest of a body of legislators. When this power is given, the power of prices is inevitably included in it.[53]

It may be said that these measures were made necessary by the war then going on. Nothing could be more baseless than such an objection. In this war the French soon became generally successful. It was quickly pushed mainly upon foreign soil. Numerous contributions were levied upon the subjugated countries to support the French armies. The war was one of those in which the loss, falling apparently on future generations, first stimulates, in a sad way, trade and production. The main cause of these evils was tampering with the circulating medium of an entire nation; keeping all values in fluctuation; discouraging enterprise; paralyzing energy; undermining sobriety; obliterating thrift; promoting extravagance and exciting riot by the issue of an irredeemable currency. The true business way of meeting the enormous demands on France during the first years of the Revolution had been stated by a true statesman and sound financier, Du Pont de Nemours, at the very beginning. He had shown that using the same paper as a circulating medium and as a means for selling the national real estate was like using the same implement for an oyster knife and a razor.[54]

It has been argued that the assignats sank in value because they were not well secured,–that securing them on government real estate was as futile as if the United States had, in the financial troubles of its early days, secured notes on its real estate. This objection is utterly fallacious. The government lands of our country were remote from the centers of capital and difficult to examine; the French national real estate was near these centers–even _in_ them–and easy to examine. Our national real estate was unimproved and unproductive; theirs was improved and productive–its average productiveness in market in ordinary times being from four to five per cent.[55]

It has also been objected that the attempt to secure the assignats on government real estate failed because of the general want of confidence in the title derived by the purchasers from the new government. Every thorough student of that period must know that this is a misleading statement. Everything shows that the vast majority of the French people had a fanatical confidence in the stability of the new government during the greater part of the Revolution. There were disbelievers in the security of the assignats just as there were disbelievers in the paper money of the United States throughout our Civil War; but they were usually a small minority. Even granting that there was a doubt as to investment in French lands, the French people certainly had as much confidence in the secure possession of government lands as any people can ever have in large issues of government bonds: indeed, it is certain that they had far more confidence in their lands as a security than modern nations can usually have in large issues of bonds obtained by payments of irredeemable paper. One simple fact, as stated by John Stuart Mill, which made assignats difficult to convert into real estate was that the vast majority of people could not afford to make investments outside their business; and this fact is no less fatal to any attempt to contract large issues of irredeemable paper–save, perhaps, a bold, statesmanlike attempt, which seizes the best time and presses every advantage, eschewing all juggling devices and sacrificing everything to maintain a sound currency based on standards common to the entire financial world.

And now was seen, taking possession of the nation, that idea which developed so easily out of the fiat money system;–the idea that the ordinary needs of government may be legitimately met wholly by the means of paper currency;–that taxes may be dispensed with. As a result, it was found that the assignat printing press was the one resource left to the government, and the increase in the volume of paper money became every day more appalling.

It will doubtless surprise many to learn that, in spite of these evident results of too much currency, the old cry of a “scarcity of circulating medium” was not stilled; it appeared not long after each issue, no matter how large.

But every thoughtful student of financial history knows that this cry always comes after such issues–nay, that it _must_ come,–because in obedience to a natural law, the former scarcity, or rather _insufficiency_ of currency recurs just as soon as prices become adjusted to the new volume, and there comes some little revival of business with the usual increase of credit.[56]

In August, 1793, appeared a new report by Cambon. No one can read it without being struck by its mingled ability and folly. His final plan of dealing with the public debt has outlasted all revolutions since, but his disposition of the inflated currency came to a wretched failure. Against Du Pont, who showed conclusively that the wild increase of paper money was leading straight to, ruin, Cambon carried the majority in the great assemblies and clubs by sheer audacity–the audacity of desperation. Zeal in supporting the assignats became his religion. The National Convention which succeeded the Legislative Assembly, issued in 1793 over three thousand millions of assignats, and, of these, over twelve hundred millions were poured into the circulation. And yet Cambon steadily insisted that the security for the assignat currency was perfect. The climax of his zeal was reached when he counted as assets in the national treasury the indemnities which, he declared, France was sure to receive after future victories over the allied nations with which she was then waging a desperate war. As patriotism, it was sublime; as finance it was deadly.[57]

Everything was tried. Very elaborately he devised a funding scheme which, taken in connection with his system of issues, was in effect what in these days would be called an “_interconvertibility scheme_” By various degrees of persuasion or force,–the guillotine looming up in the background,–holders of assignats were urged to convert them into evidence of national debt, bearing interest at five per cent, with the understanding that if more paper were afterward needed more would be issued. All in vain. The official tables of depreciation show that the assignats continued to fall. A forced loan, calling in a billion of these, checked this fall, but only for a moment. The “_interconvertibility scheme_” between currency and bonds failed as dismally as the “_interconvertibility scheme_” between currency and land had failed.[58]

A more effective expedient was a law confiscating the property of all Frenchmen who left France after July 14, 1789, and who had not returned. This gave new land to be mortgaged for the security of paper money.

All this vast chapter in financial folly is sometimes referred to as if it resulted from the direct action of men utterly unskilled in finance. This is a grave error. That wild schemers and dreamers took a leading part in setting the fiat money system going is true; that speculation and interested financiers made it worse is also true: but the men who had charge of French finance during the Reign of Terror and who made these experiments, which seem to us so monstrous, in order to rescue themselves and their country from the flood which was sweeping everything to financial ruin were universally recognized as among the most skillful and honest financiers in Europe. Cambon, especially, ranked then and ranks now as among the most expert in any period. The disastrous results of all his courage and ability in the attempt to stand against the deluge of paper money show how powerless are the most skillful masters of finance to stem the tide of fiat money calamity when once it is fairly under headway; and how useless are all enactments which they can devise against the underlying laws of nature.

Month after month, year after year new issues went on. Meanwhile everything possible was done to keep up the value of paper. The city authorities of Metz took a solemn oath that the assignats should bear the same price whether in paper or specie,–and whether in buying or selling, and various other official bodies throughout the nation followed this example. In obedience to those who believed with the market women of Paris, as stated in their famous petition, that “laws should be passed making paper money as good as gold,” Couthon, in August, 1793, had proposed and carried a law punishing any person who should sell assignats at less than their nominal value with imprisonment for twenty years in chains, and later carried a law making investments in foreign countries by Frenchmen punishable with death.[59]

But to the surprise of the great majority of the French people, the value of the assignats was found, after the momentary spasm of fear had passed, not to have been permanently increased by these measures: on the contrary, this “fiat” paper persisted in obeying the natural laws of finance and, as new issues increased, their value decreased. Nor did the most lavish aid of nature avail. The paper money of the nation seemed to possess a magic power to transmute prosperity into adversity and plenty into famine. The year 1794 was exceptionally fruitful: and yet with the autumn came scarcity of provisions and with the winter came distress. The reason is perfectly simple. The sequences in that whole history are absolutely logical. First, the Assembly had inflated the currency and raised prices enormously. Next, it had been forced to establish an arbitrary maximum price for produce. But this price, large as it seemed, soon fell below the real value of produce; many of the farmers, therefore, raised less produce or refrained from bringing what they had to market.[60] But, as is usual in such cases, the trouble was ascribed to everything rather than the real cause, and the most severe measures were established in all parts of the country to force farmers to bring produce to market, millers to grind and shopkeepers to sell it.[61] The issues of paper money continued. Toward the end of 1794 seven thousand millions in assignats were in circulation.[62] By the end of May, 1795, the circulation was increased to ten thousand millions, at the end of July, to fourteen thousand millions; and the value of one hundred francs in paper fell steadily, first to four francs in gold, then to three, then to two and one-half.[63] But, curiously enough, while this depreciation was rapidly going on, as at various other periods when depreciation was rapid, there came an apparent revival of business. The hopes of many were revived by the fact that in spite of the decline of paper there was an exceedingly brisk trade in all kinds of permanent property. Whatever articles of permanent value certain needy people were willing to sell certain cunning people were willing to buy and to pay good prices for in assignats. At this, hope revived for a time in certain quarters. But ere long it was discovered that this was one of the most distressing results of a natural law which is sure to come into play under such circumstances. It was simply a feverish activity caused by the intense desire of a large number of the shrewder class to convert their paper money into anything and everything which they could hold and hoard until the collapse which they foresaw should take place. This very activity in business simply indicated the disease. It was simply legal robbery of the more enthusiastic and trusting by the more cold-hearted and keen. It was, the “unloading” of the assignats upon the mass of the people.[64]

photo of pile of Louis d or gold coins 40 francInteresting is it to note in the midst of all this the steady action of another simple law in finance. Prisons, guillotines, enactments inflicting twenty years’ imprisonment in chains upon persons twice convicted of buying or selling paper money at less than its nominal value, and death upon investors in foreign securities, were powerless. The National Convention, fighting a world in arms and with an armed revolt on its own soil, showed titanic power, but in its struggle to circumvent one simple law of nature its weakness was pitiable. The louis d’or stood in the market as a monitor, noting each day, with unerring fidelity, the decline in value of the assignat; a monitor not to be bribed, not to be scared. As well might the National Convention try to bribe or scare away the polarity of the mariner’s compass. On August 1, 1795, this gold louis of 25 francs was worth in paper, 920 francs; on September 1st, 1,200 francs; on November 1st, 2,600 francs; on December 1st, 3,050 francs. In February, 1796, it was worth 7,200 francs or one franc in gold was worth 288 francs in paper. Prices of all commodities went up nearly in proportion.[65] The writings of this period give curious details. Thibaudeau, in his Memoirs, speaks of sugar as 500 francs a pound, soap, 230 francs, candles, 140 francs. Mercier, in his lifelike pictures of the French metropolis at that period, mentions 600 francs as carriage hire for a single drive, and 6,000 for an entire day. Examples from other sources are such as the following:–a measure of flour advanced from two francs in 1790, to 225 francs in 1795; a pair of shoes, from five francs to 200; a hat, from 14 francs to 500; butter, to, 560 francs a pound; a turkey, to 900 francs.[66] Everything was enormously inflated in price _except the wages of labor_. As manufacturers had closed, wages had fallen, until all that kept them up seemed to be the fact that so many laborers were drafted off into the army. From this state of things came grievous wrong and gross fraud. Men who had foreseen these results and had gone into debt were of course jubilant. He who in 1790 had borrowed 10,000 francs could pay his debts in 1796 for about 35 francs. Laws were made to meet these abuses. As far back as 1794 a plan was devised for publishing official “tables of depreciation” to be used in making equitable settlements of debts, but all such machinery proved futile. On the 18th of May, 1796, a young man complained to the National Convention that his elder brother, who had been acting as administrator of his deceased father’s estate, had paid the heirs in assignats, and that he had received scarcely one three-hundredth part of the real value of his share.[67] To meet cases like this, a law was passed establishing a “scale of proportion.” Taking as a standard the value of the assignat when there were two billions in circulation, this law declared that, in payment of debts, one-quarter should be added to the amount originally borrowed for every five hundred millions added to the circulation. In obedience to this law a man who borrowed two thousand francs when there were two billions in circulation would have to pay his creditors twenty-five hundred francs when half a billion more were added to the currency, and over thirty-five thousand francs before the emissions of paper reached their final amount. This brought new evils, worse, if possible, than the old.[68]

The question will naturally be asked, On whom did this vast depreciation mainly fall at last? When this currency had sunk to about one three-hundredth part of its nominal value and, after that, to nothing, in whose hands was the bulk of it? The answer is simple. I shall give it in the exact words of that thoughtful historian from whom I have already quoted: “Before the end of the year 1795 the paper money was almost exclusively in the hands of the working classes, employees and men of small means, whose property was not large enough to invest in stores of goods or national lands.[69] Financiers and men of large means were shrewd enough to put as much of their property as possible into objects of permanent value. The working classes had no such foresight or skill or means. On them finally came the great crushing weight of the loss. After the first collapse came up the cries of the starving. Roads and bridges were neglected; many manufactures were given up in utter helplessness.” To continue, in the words of the historian already cited: “None felt any confidence in the future in any respect; few dared to make a business investment for any length of time and it was accounted a folly to curtail the pleasures of the moment, to accumulate or save for so uncertain a future.”[70]

This system in finance was accompanied by a system in politics no less startling, and each system tended to aggravate the other. The wild radicals, having sent to the guillotine first all the Royalists and next all the leading Republicans they could entrap, the various factions began sending each other to the same destination:–Hebertists, Dantonists, with various other factions and groups, and, finally, the Robespierrists, followed each other in rapid succession. After these declaimers and phrase-mongers had thus disappeared there came to power, in October, 1795, a new government,–mainly a survival of the more scoundrelly,–the Directory. It found the country utterly impoverished and its only resource at first was to print more paper and to issue even while wet from the press. These new issues were made at last by the two great committees, with or without warrant of law, and in greater sums than ever. Complaints were made that the array of engravers and printers at the mint could not meet the demand for assignats–that they could produce only from sixty to seventy millions per day and that the government was spending daily from eighty to ninety millions. Four thousand millions of francs were issued during one month, a little later three thousand millions, a little later four thousand millions, until there had been put forth over thirty-five thousand millions. The purchasing power of this paper having now become almost nothing, it was decreed, on the 22nd of December, 1795, that the whole amount issued should be limited to forty thousand millions, including all that had previously been put forth and that when this had been done the copper plates should be broken. Even in spite of this, additional issues were made amounting to about ten thousand millions. But on the 18th of February, 1796, at nine o’clock in the morning, in the presence of a great crowd, the machinery, plates and paper for printing assignats were brought to the Place Vendome and there, on the spot where the Napoleon Column now stands, these were solemnly broken and burned.

Shortly afterward a report by Camus was made to the Assembly that the entire amount of paper money issued in less than six years by the Revolutionary Government of France had been over forty-five thousand millions of francs–that over six thousand millions had been annulled and burned and that at the final catastrophe there were in circulation close upon forty thousand millions. It will be readily seen that it was fully time to put an end to the system, for the gold “louis” of twenty-five francs in specie had, in February, 1796, as we have seen, become worth 7,200 francs, and, at the latest quotation of all, no less than 15,000 francs in paper money–that is, one franc in gold was nominally worth 600 francs in paper.

Such were the results of allowing dreamers, schemers, phrase-mongers, declaimers and strong men subservient to these to control a government.[71]


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The first new expedient of the Directory was to secure a forced loan of six hundred million francs from the wealthier classes; but this was found fruitless. Ominous it was when persons compelled to take this loan found for an assignat of one hundred francs only one franc was allowed. Next a National Bank was proposed; but capitalists were loath to embark in banking while the howls of the mob against all who had anything especially to do with money resounded in every city. At last the Directory bethought themselves of another expedient. This was by no means new. It had been fully tried on our continent twice before that time: and once, since–first, in our colonial period; next, during our Confederation; lastly, by the “Southern Confederacy” and here, as elsewhere, always in vain. But experience yielded to theory–plain business sense to financial metaphysics. It was determined to issue a new paper which should be “fully secured” and “as good as gold.”

Pursuant to this decision it was decreed that a new paper money “fully secured and as good as gold” be issued under the name of “mandats.” In order that these new notes should be “fully secured,” choice public real estate was set apart to an amount fully equal to the nominal value of the issue, and any one offering any amount of the mandats could at once take possession of government lands; the price of the lands to be determined by two experts, one named by the government and one by the buyer, and without the formalities and delays previously established in regard to the purchase of lands with assignats.

Perhaps the most whimsical thing in the whole situation was the fact that the government, pressed as it was by demands of all sorts, continued to issue the old assignats at the same time that it was discrediting them by issuing the new mandats. And yet in order to make the mandats “as good as gold” it was planned by forced loans and other means to reduce the quantity of assignats in circulation, so that the value of each assignat should be raised to one-thirtieth of the value of gold, then to make mandats legal tender and to substitute them for assignats at the rate of one for thirty. Never were great expectations more cruelly disappointed. Even before the mandats could be issued from the press they fell to thirty-five per cent of their nominal value; from this they speedily fell to fifteen, and soon after to five per cent, and finally, in August, 1796, six months from their first issue, to three per cent. This plan failed–just as it failed in New England in 1737; just as it failed under our own Confederation in 1781; just as it failed under the Southern Confederacy during our Civil War.[72]

To sustain this new currency the government resorted to every method that ingenuity could devise. Pamphlets suited to people of every capacity were published explaining its advantages. Never was there more skillful puffing. A pamphlet signed “Marchant” and dedicated to “People of Good Faith” was widely circulated, in which Marchant took pains to show the great advantage of the mandats as compared with assignats,–how land could be more easily acquired with them; how their security was better than with assignats; how they could not, by any possibility, sink in values as the assignats had done. But even before the pamphlet was dry from the press the depreciation of the mandats had refuted his entire argument.[73]

The old plan of penal measures was again pressed. Monot led off by proposing penalties against those who shall speak publicly against the mandats; Talot thought the penalties ought to be made especially severe; and finally it was enacted that any persons “who by their discourse or writing shall decry the mandats shall be condemned to a fine of not less than one thousand francs or more than ten thousand; and in case of a repetition of the offence, to four years in irons.” It was also decreed that those who refused to receive the mandats should be fined,–the first time, the exact sum which they refuse; the second time, ten times as much; and the third time, punished with two years in prison. But here, too, came in the action of those natural laws which are alike inexorable in all countries. This attempt proved futile in France just as it had proved futile less than twenty years before in America. No enactments could stop the downward tendency of this new paper “fully secured,” “as good as gold”; the laws that finally govern finance are not made in conventions or congresses.[74]

From time to time various new financial juggles were tried, some of them ingenious, most of them drastic. It was decreed that all assignats above the value of one hundred francs should cease to circulate after the beginning of June, 1796. But this only served to destroy the last vestige of, confidence in government notes of any kind. Another expedient was seen in the decree that paper money should be made to accord with a natural and immutable standard of value and that one franc in paper should thenceforth be worth ten pounds of wheat. This also failed. On July 16th another decree seemed to show that the authorities despaired of regulating the existing currency and it was decreed that all paper, whether mandats or assignats, should be taken at its real value, and that bargains might be made in whatever currency people chose. The real value of the mandats speedily sank to about two per cent of their nominal value and the only effect of this legislation seemed to be that both assignats and mandats went still lower. Then from February 4 to February 14, 1797, came decrees and orders that the engraving apparatus for the mandats should be destroyed as that for the assignats had been, that neither assignats nor mandats should longer be a legal tender and that old debts to the state might be paid for a time with government paper at the rate of one per cent of their face value.[75] Then, less than three months later, it was decreed that the twenty-one billions of assignats still in circulation should be annulled. Finally, on September 30, 1797, as the culmination of these and various other experiments and expedients, came an order of the Directory that the national debts should be paid two-thirds in bonds which might be used in purchasing confiscated real estate, and the remaining “Consolidated Third,” as it was called, was to be placed on the “Great Book” of the national debt to be paid thenceforth as the government should think best.

As to the bonds which the creditors of the nation were thus forced to take, they sank rapidly, as the assignats and mandats had done, even to three per cent of their value. As to the “Consolidated Third,” that was largely paid, until the coming of Bonaparte, in paper money which sank gradually to about six per cent of its face value. Since May, 1797, both assignats and mandats had been virtually worth nothing.

So ended the reign of paper money in France. The twenty-five hundred millions of mandats went into the common heap of refuse with the previous forty-five thousand millions of assignats: the nation in general, rich and poor alike, was plunged into financial ruin from one end to the other.

On the prices charged for articles of ordinary use light is thrown by extracts from a table published in 1795, reduced to American coinage.

1790 1795 For a bushel of flour 40 cents 45 dollars For a bushel of oats 18 cents 10 dollars For a cartload of wood 4 dollars 500 dollars For a bushel of coal 7 cents 2 dollars For a pound of sugar 18 cents 12 1/2 dollars For a pound of soap 18 cents 8 dollars For a pound of candles 18 cents 8 dollars For one cabbage 8 cents 5 1/2 dollars For a pair of shoes 1 dollar 40 dollars For twenty-five eggs 24 cents 5 dollars

But these prices about the middle of 1795 were moderate compared with those which were reached before the close of that year and during the year following. Perfectly authentic examples were such as the following:

A pound of bread 9 dollars A bushel of potatoes 40 dollars A pound of candles 40 dollars A cartload of wood 250 dollars

So much for the poorer people. Typical of those esteemed wealthy may be mentioned a manufacturer of hardware who, having retired from business in 1790 with 321,000 livres, found his property in 1796 worth 14,000 francs.[76]

For this general distress arising from the development and collapse of “fiat” money in France, there was, indeed, one exception. In Paris and a few of the other great cities, men like Tallien, of the heartless, debauched, luxurious, speculator, contractor and stock-gambler class, had risen above the ruins of the multitudes of smaller fortunes. Tallien, one of the worst demagogue “reformers,” and a certain number of men like him, had been skillful enough to become millionaires, while their dupes, who had clamored for issues of paper money, had become paupers.

The luxury and extravagance of the currency gamblers and their families form one of the most significant features in any picture of the social condition of that period.[77]

A few years before this the leading women in French society showed a nobility of character and a simplicity in dress worthy of Roman matrons. Of these were Madame Boland and Madame Desmoulins; but now all was changed. At the head of society stood Madame Tallien and others like her, wild in extravagance, daily seeking new refinements in luxury, and demanding of their husbands and lovers vast sums to array them and to feed their whims. If such sums could not be obtained honestly they must be had dishonestly. The more closely one examines that period, the more clearly he sees that the pictures, given by Thibaudeau and Challamel and De Goncourt are not at all exaggerated.[78]

The contrast between these gay creatures of the Directory period and the people at large was striking. Indeed much as the vast majority of the wealthy classes suffered from impoverishment, the laboring classes, salaried employees of all sorts, and people of fixed income and of small means, especially in the cities, underwent yet greater distress. These were found, as a rule, to subsist mainly on daily government rations of bread at the rate of one pound per person. This was frequently unfit for food and was distributed to long lines of people, men, women and children, who were at times obliged to wait their turn even from dawn to dusk. The very rich could, by various means, especially by bribery, obtain better bread, but only at enormous cost. In May, 1796, the market price of good bread was, in paper, 80 francs (16 dollars) per pound and a little later provisions could not be bought for paper money at any price.[79]

And here it may be worth mentioning that there was another financial trouble especially vexatious. While, as we have seen, such enormous sums, rising from twenty to forty thousand millions of francs in paper, were put in circulation by the successive governments of the Revolution, enormous sums had been set afloat in counterfeits by criminals and by the enemies of France. These came not only from various parts of the French Republic but from nearly all the surrounding nations, the main source being London. Thence it was that Count Joseph de Puisaye sent off cargoes of false paper, excellently engraved and printed, through ports in Brittany and other disaffected parts of France. One seizure by General Hoche was declared by him to exceed in nominal value ten thousand millions of francs. With the exception of a few of these issues, detection was exceedingly difficult, even for experts; for the vast majority of the people it was impossible.

Nor was this all. At various times the insurgent royalists in La Vendee and elsewhere put their presses also in operation, issuing notes bearing the Bourbon arms,–the fleur-de-lis, the portrait of the Dauphin (as Louis XVII) with the magic legend “De Par le Roi,” and large bodies of the population in the insurgent districts were forced to take these. Even as late as 1799 these notes continued to appear.[80]

The financial agony was prolonged somewhat by attempts to secure funds by still another “forced loan,” and other discredited measures, but when all was over with paper money, specie began to reappear–first in sufficient sums to do the small amount of business which remained after the collapse. Then as the business demand increased, the amount of specie flowed in from the world at large to meet it and the nation gradually recovered from that long paper-money debauch.

Thibaudeau, a very thoughtful observer, tells us in his Memoirs that great fears were felt as to a want of circulating medium between the time when paper should go out and coin should come in; but that no such want was severely felt–that coin came in gradually as it was wanted.[81]

Nothing could better exemplify the saying of one of the most shrewd of modern statesmen that “There will always be money.”[82]

But though there soon came a degree of prosperity–as compared with the distress during the paper-money orgy, convalescence was slow. The acute suffering from the wreck and rain brought by assignats, mandats and other paper currency in process of repudiation lasted nearly ten years, but the period of recovery lasted longer than the generation which followed. It required fully forty years to bring capital, industry, commerce and credit up to their condition when the Revolution began, and demanded a “man on horseback,” who established monarchy on the ruins of the Republic and thew away millions of lives for the Empire, to be added to the millions which had been sacrificed by the Revolution.[83]

Such, briefly sketched in its leading features, is the history of the most skillful, vigorous and persistent attempt ever made to substitute for natural laws in finance the ability of legislative bodies, and, for a standard of value recognized throughout the world, a national standard devised by theorists and manipulated by schemers. Every other attempt of the same kind in human history, under whatever circumstances, has reached similar results in kind if not in degree; all of them show the existence of financial laws as real in their operation as those which hold the planets in their courses.[84]

I have now presented this history in its chronological order–the order of events: let me, in conclusion, sum it up, briefly, in its logical order,–the order of cause and effect.

And, first, in the economic department. From the early reluctant and careful issues of paper we saw, as an immediate result, improvement and activity in business. Then arose the clamor for more paper money. At first, new issues were made with great difficulty; but, the dyke once broken, the current of irredeemable currency poured through; and, the breach thus enlarging, this currency was soon swollen beyond control. It was urged on by speculators for a rise in values; by demagogues who persuaded the mob that a nation, by its simple fiat, could stamp real value to any amount upon valueless objects. As a natural consequence a great debtor class grew rapidly, and this class gave its influence to depreciate more and more the currency in which its debts were to be paid.[85]

The government now began, and continued by spasms to grind out still more paper; commerce was at first stimulated by the difference in exchange; but this cause soon ceased to operate, and commerce, having been stimulated unhealthfully, wasted away.

Manufactures at first received a great impulse; but, ere long, this overproduction and overstimulus proved as fatal to them as to commerce. From time to time there was a revival of hope caused by an apparent revival of business; but this revival of business was at last seen to be caused more and more by the desire of far-seeing and cunning men of affairs to exchange paper money for objects of permanent value. As to the people at large, the classes living on fixed incomes and small salaries felt the pressure first, as soon as the purchasing power of their fixed incomes was reduced. Soon the great class living on wages felt it even more sadly.

Prices of the necessities of life increased: merchants were obliged to increase them, not only to cover depreciation of their merchandise, but also to cover their risk of loss from fluctuation; and, while the prices of products thus rose, wages, which had at first gone up, under the general stimulus, lagged behind. Under the universal doubt and discouragement, commerce and manufactures were checked or destroyed. As a consequence the demand for labor was diminished; laboring men were thrown out of employment, and, under the operation of the simplest law of supply and demand, the price of labor–the daily wages of the laboring class–went down until, at a time when prices of food, clothing and various articles of consumption were enormous, wages were nearly as low as at the time preceding the first issue of irredeemable currency.

The mercantile classes at first thought themselves exempt from the general misfortune. They were delighted at the apparent advance in the value of the goods upon their shelves. But they soon found that, as they increased prices to cover the inflation of currency and the risk from fluctuation and uncertainty, purchases became less in amount and payments less sure; a feeling of insecurity spread throughout the country; enterprise was deadened and stagnation followed.

New issues of paper were then clamored for as more drams are demanded by a drunkard. New issues only increased the evil; capitalists were all the more reluctant to embark their money on such a sea of doubt. Workmen of all sorts were more and more thrown out of employment. Issue after issue of currency came; but no relief resulted save a momentary stimulus, which aggravated the disease. The most ingenious evasions of natural laws in finance which the most subtle theorists could contrive were tried–all in vain; the most brilliant substitutes for those laws were tried; “self-regulating” schemes, “interconverting” schemes–all equally vain.[86] All thoughtful men had lost confidence. All men were waiting; stagnation became worse and worse. At last came the collapse and then a return, by a fearful shock, to a state of things which presented something like certainty of remuneration to capital and labor. Then, and not till then, came the beginning of a new era of prosperity.

Just as dependent on the law of cause and effect was the moral development. Out of the inflation of prices grew a speculating class; and, in the complete uncertainty as to the future, all business became a game of chance, and all business men, gamblers. In city centers came a quick growth of stock-jobbers and speculators; and these set a debasing fashion in business which spread to the remotest parts of the country. Instead of satisfaction with legitimate profits, came a passion for inordinate gains. Then, too, as values became more and more uncertain, there was no longer any motive for care or economy, but every motive for immediate expenditure and present enjoyment. So came upon the nation the obliteration of thrift. In this mania for yielding to present enjoyment rather than providing for future comfort were the seeds of new growths of wretchedness: luxury, senseless and extravagant, set in: this, too, spread as a fashion. To feed it, there came cheatery in the nation at large and corruption among officials and persons holding trusts. While men set such fashions in private and official business, women set fashions of extravagance in dress and living that added to the incentives to corruption. Faith in moral considerations, or even in good impulses, yielded to general distrust. National honor was thought a fiction cherished only by hypocrites. Patriotism was eaten out by cynicism.

Thus was the history of France logically developed in obedience to natural laws; such has, to a greater or less degree, always been the result of irredeemable paper, created according to the whim or interest of legislative assemblies rather than based upon standards of value permanent in their nature and agreed upon throughout the entire world. Such, we may fairly expect, will always be the result of them until the fiat of the Almighty shall evolve laws in the universe radically different from those which at present obtain.[87]

And, finally, as to the general development of the theory and practice which all this history records: my subject has been Fiat Money in France; How it came; What it brought; and How it ended.

It came by seeking a remedy for a comparatively small evil in an evil infinitely more dangerous. To cure a disease temporary in its character, a corrosive poison was administered, which ate out the vitals of French prosperity.

It progressed according to a law in social physics which we may call the “law of accelerating issue and depreciation.” It was comparatively easy to refrain from the first issue; it was exceedingly difficult to refrain from the second; to refrain from the third and those following was practically impossible.

It brought, as we have seen, commerce and manufactures, the mercantile interest, the agricultural interest, to ruin. It brought on these the same destruction which would come to a Hollander opening the dykes of the sea to irrigate his garden in a dry summer.

It ended in the complete financial, moral and political prostration of France-a prostration from which only a Napoleon could raise it.

But this history would be incomplete without a brief sequel, showing how that great genius profited by all his experience. When Bonaparte took the consulship the condition of fiscal affairs was appalling. The government was bankrupt; an immense debt was unpaid. The further collection of taxes seemed impossible; the assessments were in hopeless confusion. War was going on in the East, on the Rhine, and in Italy, and civil war, in La Vendee. All the armies had long been unpaid, and the largest loan that could for the moment be effected was for a sum hardly meeting the expenses of the government for a single day. At the first cabinet council Bonaparte was asked what he intended to do. He replied, “I will pay cash or pay nothing.” From this time he conducted all his operations on this basis. He arranged the assessments, funded the debt, and made payments in cash; and from this time–during all the campaigns of Marengo, Austerlitz, Jena, Eylau, Friedland, down to the Peace of Tilsit in 1807–there was but one suspension of specie payment, and this only for a few days. When the first great European coalition was formed against the Empire, Napoleon was hard pressed financially, and it was proposed to resort to paper money; but he wrote to his minister, “While I live I will never resort to irredeemable paper.” He never did, and France, under this determination, commanded all the gold she needed. When Waterloo came, with the invasion of the Allies, with war on her own soil, with a change of dynasty, and with heavy expenses for war and indemnities, France, on a specie basis, experienced no severe financial distress.

If we glance at the financial history of France during the Franco-Prussian War and the Communist struggle, in which a far more serious pressure was brought upon French finances than our own recent Civil War put upon American finance, and yet with no national stagnation or distress, but with a steady progress in prosperity, we shall see still more clearly the advantage of meeting a financial crisis in an honest and straightforward way, and by methods sanctioned by the world’s most costly experience, rather than by yielding to dreamers, theorists, phrase-mongers, declaimers, schemers, speculators or to that sort of, “Reform” which is “the last refuge of a scoundrel.”[88]

There is a lesson in all this which it behooves every thinking man to ponder.

Image of Andrew Dickson White, portrait ink drawingAndrew Dickson White, 1832-1918, American diplomat, historian, economist, lecturer, and writer. Born in Homer, New York. Began education at Geneva College, graduated Yale in1853, and studied in Europe for a further three years before joining the University of Michigan as professor of history and English literature. White was the founder (1865) and first president of Cornell University. Served as the minister to Germany (1879-1881) and Russia (1892-1894) and ambassador to Germany (1897-1902). As an author, White’s best known works are A History of the Warfare of Science with Theology in Christendom (1896) and Seven Great Statesmen in the Warfare of Humanity with Unreason (1910).


The White Collection at the Cornell University library mentioned in many of the following notes is described here:

[1] A paper read before a meeting of Senators and Members of the House of Representatives of both political parties, at Washington, April 12th, and before the Union League Club, at New York, April 13th, 1876, and now (1914) revised and extended.

[2] For proof that the financial situation of France at that time was by no means hopeless, see Storch, “Economie Politique,” vol. iv, p. 159.

[3] See Moniteur, sitting of April 10, 1790.

[4] Ibid., sitting of April 15, 1790.

[5] For details of this struggle, see Buchez and Roux, “Histoire Parlementaire de la Revolution Francaise,” vol. iii, pp. 364, 365, 404. For the wild utterances of Marat throughout this whole history, see the full set of his “L’ami du peuple” in the President White Collection of the Cornell University. For Bergasse’s pamphlet and a mass of similar publications, see the same collection. For the effect produced by them, see Challamel, “Les FranÌ?ais sous la Revolution”; also De Goncourt, “La Societe FranÌ?aise pendant la Revolution,” &c.

For the Report referred to, see Levasseur, “Histoire des classes ouvriès et de l’industrie en France de 1789 ÌÊ 1870,” Paris, 1903, vol. i., chap. 6. Levasseur (vol. 1, p. 120), a very strong conservative in such estimates, sets the total value of church property at two thousand millions; other authorities put it as high as twice that sum. See especially Taine, liv. ii, ch. I., who gives the valuation as “about four milliards.” Sybel, “Gesch. der Revolutionszeit,” gives it as two milliards and Briand, “La separation” &c., agrees with him. See also De Nerve, “Finances FranÌ?aises,” vol. ii, pp. 236-240; also Alison, “History of Europe,” vol. i.

[6] For striking pictures of this feeling among the younger generation of Frenchmen, see Challamel, “Sur la Revolution,” p. 305. For general history of John Law’s paper money, see Henri Martin, “Histoire de France”; also Blanqui, “Histoire de l’economie politique,” vol. ii, pp. 65-87; also Senior on “Paper Money,” sec. iii, Pt. I, also Thiers, “Histoire de Law”; also Levasseur, op. cit. Liv. i., chap. VI. Several specimens of John Law’s paper currency are to be found in the White Collection in the Library of Cornell University,–some, numbered with enormous figures.

[7] See Buchez and Roux, “Histoire Parlementaire,” vol. v, p. 321, et seq. For an argument to prove that the assignats were, after all, not so well secured as John Law’s money, see Storch, “Economie Politique,” vol. iv, p. 160.

[8] For specimens of this first issue and of nearly every other issue during the French Revolution, see the extensive collection of originals in the Cornell University Library. For a virtually complete collection of photographic copies, see Dewamin, “Cent ans de numismatique franÌ?aise,” vol. i, passim.

[9] See “Addresse de l’Assemblee nationals sur lea emissions _d’assignats_ monnaies,” p. 5.

[10] Ibid., p. 10.

[11] For Sarot, see “Lettre de M. Sarot,” Paris, April 19, 1790. As to the sermon referred to see Levasseur as above, vol. i, p. 136.

[12] Von Sybel, “History of the French Revolution,” vol. i, p. 252; also Levasseur, as above, pp. 137 and following.

[13] For Mirabeau’s real opinion on irredeemable paper, see his letter to Cerutti, in a leading article of the “Moniteur”; also “Mèmoires do Mirabeau,” vol. vii, pp. 23, 24 and elsewhere. For his pungent remarks above quoted, see Levasseur, ibid., vol. i, p. 118.

[14] See “Moniteur,” August 27, 1790.

[15] “Moniteur,” August 28, 1790; also Levasseur, as above, pp. 139 _et seq_.

[16] “Par une seule operation, grande, simple, magnifique.” See “Moniteur.” The whole sounds curiously like the proposals of the “Greenbackers,” regarding the American debt, some years since.

[17] “Moniteur,” August 29, 1790.

[18] See Lacretelle, “18me Siecle,” vol. viii, pp. 84-87; also Thiers and Mignet.

[19] See Hatin, Histoire de la Presse en France, vols. v and vi.

[20] See “Moniteur,” Sept. 5, 6 and 20, 1790.

[21] See Levasseur, vol. i, p. 142.

[22] See speech in “Moniteur”; also in Appendix to Thiers’ “History of the French Revolution.”

[23] See Levassear, “Classes ouvrières,” etc., vol. i, p. 149.

[24] See Levasseur, pp. 151 et seq. Various examples of these “confidence bills” are to be seen in the Library of Cornell University.

[25] See Levasseur, vol. i, pp. 155-156.

[26] See Von Sybel, “History of the Revolution,” vol. i, p. 265; also Levasseur, as above, vol. i, pp. 152-160.

[27] For Turgot’s argument against “fiat money” theory, see A. D. White, “Seven Great Statesmen in the Warfare of Humanity with Unreason,” article on Turgot, pp. 169, et seq.

[28] See De Goncourt, Societie francaise,” for other explanations; “Les Revolutions de Paris,” vol. ii, p. 216; Challamel, “Les Francais sous la Revolution”; Senior, “On Some Effects of Paper Money,” p. 82; Buchez and Roux, “Histoire Parlementaire,” etc., vol. x, p. 216; Aulard, “Paris pendant la Revolution thermidorienne,” _passim_, and especially “Rapport du bureau de surveillance,” vol. ii, pp. 562, et seq. (Dec. 4-24, 1795.)

[29] For statements and illustration of the general action of this law, see Sumner, “History of American Currency,” pp. 157, 158; also Jevons, on “Money,” p. 80.

[30] See De Goncourt, “SocietÌe Francaise,” p. 214.

[31] See Von Sybel, History of the French Revolution, vol. 1, pp. 281, 283.

[32] For proofs that issues of irredeemable paper at first stimulated manufactures and commerce in Austria and afterward ruined them, see Storch’s “Economie politique,” vol. iv, p. 223, note; and for the same effect produced by the same causes in Russia, see ibid., end of vol. iv. For the same effects in America, see Sumner’s “History of American Currency.” For general statement of effect of inconvertible issues on foreign exchanges see McLeod on “Banking,” p. 186.

[33] See Louis Blanc, “Histoire de la Revolution,” tome xii, p. 113.

[34] See “Extrait du registre des deliberations de la section de la bibliothique,” May 3, 1791, pp. 4, 5.

[35] Von Sybel, vol. i, p. 273.

[36] For general account, see Thiers’ “Revolution,” chap. xiv; also Lacretelle, vol. viii, p. 109; also “Memoirs of Mallet du Pan.” For a good account of the intrigues between the court and Mirabeau and of the prices paid him, see Reeve, “Democracy and Monarchy in France,” vol. i, pp. 213-220. For a very striking caricature published after the iron chest in the Tuileries was opened and the evidences of bribery of Mirabeau fully revealed, see Challamel, “Musie,” etc. Vol. i, p. 341, is represented as a skeleton sitting on a pile of letters, holding the French crown in one hand and a purse of gold in the other.

[37] Thiers, chap. ix.

[38] For this and other evidences of steady decline in the purchasing power of the assignats, see Caron, “Tableaux de Depreiation du papier-monnaie,” Paris, 1909, p. 386.

[39] See especially “Discours de Fabre d’Eglantine,” in “Moniteur” for August 11, 1793; also debate in “Moniteur” of September 15, 1793; also Prudhomme’s “Revolutions de Paris.” For arguments of much the same tenor, see vast numbers of pamphlets, newspaper articles and speeches during the “Greenback Craze,”–and the craze for unlimited coinage of silver,–in the United States.

[40] See Caron, “Tableaux de Depreciation,” as above, p. 386.

[41] Von Sybel, vol. i, pp. 509, 510, 515; also Villeneuve Bargemont, “Histoire de l’Economie Politique,” vol. ii, p. 213.

[42] As to the purchasing power of money at that time, see Arthur Young, “Travels in France during the Years 1787, 1788 and 1789.” For notices of the small currency with examples of satirical verses written regarding it, see Challamel, “Les francais sous la Revolution,” pp. 307, 308. See also Mercier, “Le Nouveau Paris,” edition of 1800, chapter ccv., entitled “Parchemin Monnaie.” A series of these petty notes will be found in the White collection of the Cornell University Library. They are very dirty and much worn, but being printed on parchment, remain perfectly legible. For issue of quarter-“sou” pieces see Levasseur, p. 180.

[43] See Levasseur, vol. i, p. 176.

[44] For Chaumette’s brilliant display of fictitious reasons for the decline see Thiers, Shoberl’s translation, published by Bentley, vol. iii, p. 248.

[45] For these fluctuations, see Caron, as above, p. 387.

[46] One of the Forced Loan certificates will be found in the White Collection in the Library of Cornell University.

[47] For details of these transactions, see Levasseur, as above, vol. i, chap. 6, pp. 181, et seq. Original specimens of these notes, bearing the portrait of Louis XVI will be found in the Cornell University Library (White Collection) and for the whole series perfectly photographed in the same collection, Dewarmin, “Cent ans de numismatique franÌ?aise,” vol. i, pp. 143-165.

[48] For statements showing the distress and disorder that forced the Convention to establish the “Maximum” see Levasseur, vol. i, pp. 188-193.

[49] See Levasseur, as above, vol. i, pp. 195-225.

[50] See specimens of these tickets in the White Collection in the Cornell Library.

[51] For these condemnations to the guillotine see the officially published trials and also the lists of the condemned, in the White Collection, also the lists given daily in the “Moniteur.” For the spy system, see Levasseur, vol. i, p. 194.

[52] See Levasseur, as above, vol. i, p. 186. For an argument to show that the Convention was led into this Draconian legislation, not by necessity, but by its despotic tendencies, see Von Sybel’s “History of the French Revolution,” vol. iii, pp. 11, 12. For general statements of theories underlying the “Maximum,” see Thiers; for a very interesting picture, by an eye-witness, of the absurdities and miseries it caused, see Mercier, “Nouveau Paris,” edition of 1800, chapter XLIV.

[53] For a summary of the report of the Committee, with list of articles embraced under it, and for various interesting details, see Villeneuve Bargemont, “Histoire de l’Economie Politique,” vol. ii, pp. 213-239; also Levasseur, as above. For curious examples of severe penalties for very slight infringements on the law on the subject, see Louis Blanc, “Histoire de la Revolution franÌ?aise,” tome x, p. 144. For Louis XIVth’s claim see “Memoirs of Louis XIV for the Instruction of the Dauphin.”

For a simple exposition of the way in which the exercise of this power became simply confiscation of all private property in France, see Mallet Du Pan’s “Memoirs,” London, 1852, vol. ii, p. 14.

[54] See Du Pont’s arguments, as given by Levasseur.

[55] Louis Blanc calls attention to this very fact in showing the superiority of the French assignats to the old American Continental currency, See his “Histoire de la Revolution franÌ?aise,” tome xii, p. 98.

[56] See Sumner, as above, p. 220.

[57] See Levasseur, as above, vol. i, p. 178.

[58] See Cambon’s “Report,” Aug. 15, 1793, pp. 49-60; also, “Decree of Aug. 24, 1793,” sec. 31, chapters XCVI-CIII. Also, “Tableaux de la depreciation de papier monnaie dans le department de la Seine.”

[59] For the example of Metz and other authorities, see Levasseur, as above, vol. i, p. 180.

[60] See Von Sybel, vol. iii, p. 173.

[61] See Thiers; also, for curious details of measures taken to compel farmers and merchants, see Senior, Lectures on “Results of Paper Money,” pp. 86, 87.

[62] See Von Sybel, vol. iv, p. 231.

[63] See Von Sybel, vol. iv, p. 330; also tables of depreciation in “Moniteur”; also official reports in the White Collection; also Caron’s “Tables,” etc.

[64] For a lifelike sketch of the way in which these exchanges of assignats for valuable property went on at periods of the rapid depreciation of paper, see Challamel, “Les francais sous la Revolution,” p. 309; also Say, “Economic Politique.”

[65] For a very complete table of the depreciation from day to day, see “Supplement to the Moniteur” of October 2, 1797; also Caron, as above. For the market prices of the louis d’or at the first of every month, as the collapse approached, see Montgaillard. See also “Official Lists” in the White Collection. For a table showing the steady rise of the franc in gold during a single week, from 251 to 280 francs, see Dewarmin, as above, vol. i, p. 136.

[66] See “Mèmoires de Thibaudeau,” vol. ii, p. 26, also Mercier, “Lo Nouveau Paris,” vol. ii, p. 90; for curious example of the scales of depreciation see the White Collection. See also extended table of comparative values in 1790 and 1795. See Levasseur, as above, vol. i, pp. 223-4.

[67] For a striking similar case in our own country, see Sumner, “History of American Currency, ” p. 47.

[68] See Villeneuve Bargemont, “Histoire de l’economie politique,” vol. ii, p. 229.

[69] See Von Sybel, vol. iv, pp. 337, 338. See also for confirmation Challamel, “Histoire Musee,” vol. ii, p. 179. For a thoughtful statement of the reasons why such paper was not invested in lands by men of moderate means, and workingmen, see Mill, “Political Economy,” vol. ii, pp. 81, 82.

[70] See Von Sybel, vol. iv, p. 222.

[71] See especially Levasseur, “Histoire des classes ouvrières,” etc. vol. i, pp. 219, 230 and elsewhere; also De Nervo, “Finance francaise,” p. 280; also Stourm, as already cited. The exact amount of assignats in circulation at the final suppression is given by Dowarmin, (vol. i, p. 189), as 39,999,945,428 livres or francs.

[72] For details of the mandat system very thoroughly given, see Thiers’ “History of the French Revolution,” Bentley’s edition, vol. iv, pp. 410-412. For the issue of assignats and mandats at the same time, see Dewarmin, vol. i, p. 136; also Levasseur, vol. i, pp. 230-257. For an account of “new tenor bills” in America and their failure in 1737, see Summer, pp. 27-31; for their failure in 1781, see Morse, “Life of Alexander Hamilton,” vol. i, pp. 86, 87. For similar failure in Austria, see Summer, p. 314.

[73] See Marchant, “Lettre aux gens de bonne foi.”

[74] See Summer, p. 44; also De Nervo, “Finances francaises,” p. 282.

[75] See De Nervo, “Finances francaises,” p. 282; also Levasseur, vol. i, p. 236 et seq.

[76] See Table from “Gazette de France” and extracts from other sources in Levasseur, vol. i, pp. 223-4.

[77] Among the many striking accounts of the debasing effects of “inflation” upon France under the Directory perhaps the best is that of Lacretelle, vol. xiii, pp. 32-36. For similar effect, produced by the same cause in our own country in 1819, see statement from Niles’ “Register,” in Sumner, p. 80. For the jumble of families reduced to beggary with families lifted into sudden wealth and for the mass of folly and misery thus mingled, see Levassour, vol. i, p. 237.

[78] For Madame Tallien and luxury of the stock-gambler classes, see Challamel, “Les franÌ?ais sous la Revolution,” pp. 30, 33; also De Goncourt, “Les franÌ?ais sous le Directoire.” Regarding the outburst of vice in Paris and the demoralization of the police, see Levasseur, as above.

[79] See Levasseur, Vol. i, p. 237, et seq.

[80] For specimens of counterfeit assignats, see the White Collection in the Cornell University Library, but for the great series of various issues of them in fac-simile, also for detective warnings and attempted descriptions of many varieties of them, and for the history of their Issue, see especially Dewarmin, vol. i, pp. 152-161. For photographic copies of Royalist assignats, etc., see also Dewarmin, ibid., pp. 192-197, etc. For a photograph of probably the last of the Royalist notes ever issued, bearing the words “Pro Deo, pro Rege, pro Patria” and “Armee Catholique et Royale” with the date 1799, and for the sum of 100 livres, see Dewarmin, vol. i, p. 204.

[81] For similar expectation of a “shock,” which did not occur, at the resumption of specie payments in Massachusetts, see Sumner, “History of American Currency,” p. 34.

[82] See Thiers.

[83] See Levasseur, vol. i, p. 246.

[84] For examples of similar effects in Russia, Austria and Denmark, see Storch, “Economie Politique,” vol. iv; for similar effects in the United States, see Gouge, “Paper Money and Banking in the United States,” also Summer, “History of American Currency.” For working out of the same principles in England, depicted in a masterly way, see Macaulay, “History of England,” chap. xxi; and for curious exhibition of the same causes producing same results in ancient Greece, see a curious quotation by Macaulay in same chapter.

[85] For parallel cases in the early history of our own country, see Sumner, p. 21, and elsewhere.

[86] For a review of some of these attempts, with eloquent statement of their evil results, see “Memoires de Durand de Maillane,” pp. 166-169.

[87] For similar effect of inflated currency in enervating and undermining trade, husbandry, manufactures and morals in our own country, see Daniel Webster, cited in Sumner, pp. 45-50. For similar effects in other countries, see Senior, Storch, Macaulay and others already cited.

[88] For facts regarding French finance under Napoleon I am indebted to Hon. David A. Wells. For more recent triumphs of financial commonsense in France, see Bonnet’s articles, translated by the late George Walker, Esq. For general subject, see Levasseur.

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A word on USAGOLD – USAGOLD ranks among the most reputable gold companies in the United States. Founded in the 1970s and still family-owned, it is one of the oldest and most respected names in the gold industry. USAGOLD has always attracted a certain type of investor – one looking for a high degree of reliability and market insight coupled with a professional client (rather than customer) approach to precious metals ownership. We are large enough to provide the advantages of scale, but not so large that we do not have time for you. (We invite your visit to the Better Business Bureau website to review our five-star, zero-complaint record. The report includes a large number of verified customer reviews.)

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A Gold Classics Library Selection

Gold Seizure
Here’s how it can happen and what you can do about it.

by David L. Ganz

Editor’s note: David L Ganz is a prominent New York City attorney who specializes in precious metals and numismatic law. His wide-ranging biography includes advising several Congressional committees and commissions, including the Annual Assay Commission, life fellowship at the prestigious American Numismatic Society, past president of the American Numismatic Association, listing in Who’s Who of American Law and the Order of St. Agatha (Commander) awarded by the Republic of San Marino. He has authored over 30 books and remains highly regarded as a consultant, writer and lawyer in the field of coins and precious metals both publicly and among his peers.

Much has been offered in the way of opinion on the matter of a potential gold confiscation, but too little of it is well-researched, well-informed and grounded in a true understanding of the laws and regulations involved. Below Mr. Ganz applies his considerable expertise and unique perpsective to the mysteries surrounding gold confiscation, unravels past legal precedent, and offers some practical suggestions on a course of action for those concerned with the possibility.

Allow me to make a personal observation and then I will send you on your way to Mr. Ganz’ important and timely analysis. Too many gold owners labor under the false presumption that high-end, high-premium numismatic gold coins are the only way you can protect your holdings against a potential seizure. Many of our prospective clients are pleasantly surprised when they discover that there is a whole genre of pre-1933 gold coins that can be acquired at modest premiums over the gold content and still meet the criteria for exemption Mr. Ganz outlines. As he points out, “rare and unusual” does not necessarily equate to “pricey” or “expensive.” To understand why the words “rare and unusual” are important, we invite you to read on.

The economy is causing a number of people to query my law office about a number of gold seizure scenarios. The questions that arise from it are

(a) what they can do to prevent seizures in the first instance,

(b) in the second instance, what they might be able to do if seizures are authorized, and

(c) what type of gold coins are likely not to be seized in such an event- and why.

Inquiries are coming from sincere believers – not in conspiracy theories, but rather in the “staying power” of gold in both the short term and the long run. This is not a measure of their sincerity but rather concerns that are expressed are real – these are hard money strategists, not people who go off with half-baked ideas that are politically motivated.

There’s a difference. I remember about 30 years ago a well-dressed gentleman made an appointment to see me, sat in my office, and inquired if I “knew” about gamma rays. Fair enough. I assumed it was a discussion about patents, and was prepared to refer the matter to experienced patent counsel. We made small talk for another minute or two when my putative client renewed the question, and then took out a hat made of aluminum foil, put it atop his head, and proclaimed, “because they are aiming them at me, right now!” Patent counsel was not in his immediate future.

I have no great insight to offer as to whether or not gold seizure is in the offing, but there are some interesting reasons cited by many as to why the government of the United States – and maybe the world as well – may need to nationalize gold again, if only for the purpose of making sure that governments, not their citizens, remain in control of the economy.

In talking with many of the people, they question how the government could possibly enforce a gold seizure and go on to tell me that no power on earth could make them give up the gold that they have hoarded – to protect themselves from that dramatic end of days when, as in Eric Maria Remarque’s novel The Last Obelisk, about post World War I Germany, assets (not money) alone have value.

My rejoinder is that some of the best literature has been written by authors from prison, to which they often sublimely respond that the government lacked the resources to prosecute people – and that even in the old days, that wasn’t something that the government did (i.e., prosecute people for declining to turn in their gold).

Clearing up misconceptions about government’s power to confiscate

Wake up little Suzy!

This is not the 1957 recording by the Everly Brothers. Americans continue to have an attraction to gold perhaps because there is so little of it around. A frequent example cited by the South African Bureau of Mines is that if all the gold in the world- from the time it was mined by the Lydians (circa 750 B.C.) until today – was melted and poured into a mold the size and shape of the Washington Monument, it would not even go half way to the top.

Add to that an element of some economic uncertainty and it’s not hard to figure out just why, for well over two thousand years, Gold has been an asset of choice, and why it remains so popular with collectors, who know that the numismatic value – the additional element of scarcity – only enhances its worth.

Now, let’s clear up some misconceptions as to what happened in 1933-1934; what legal authority the president had, and has, to order the seizure of gold (or other precious metal); what evidence of compulsion was used before (and what could be used now), and just what is so magical about this metal that makes some individuals covet it, and makes governments fear it.

Let’s start with the premise that there is simply no element of compulsion that can be employed to make a citizen turn in gold coin or bullion, especially if the coin is legal tender. The premise is absolutely wrong.(1)

In 1933, President Franklin D. Roosevelt (using the “Trading with the Enemy Act of 1917”) issued an executive order on April 5, 1933 (Please see original U.S. post office poster) requiring that less than a month later on or before May 1,1933, all persons in possession or control of gold coin, gold bullion, and gold certificates (i.e. paper currency redeemable in gold coin of the United States) to turn them in to any federal reserve bank or any “member bank” of the Federal Reserve system.

photo of President Franklin D Roosevelt about to give radio speechPhoto Credit Franklin D. Roosevelt Presidential Library, Hyde Park, N.Y.

(The “Trading with the Enemy Act” is still around; it was last amended by Congress a couple of years ago and the general consensus in the legal community is that a confiscation could happen again in the near future. Want proof? Read Professor Hank Holzer’s article in the 1973 Brooklyn Law Review: “How Americans lost their right to own gold and became criminals in the process.”)

Let’s take a look at Title 12 of the United States Code, Sec 95:

Sec 95. Emergency limitations and restrictions on business of members of Federal reserve system; designation of legal holiday.

(a) In order to provide for the safer and more effective operation of the National Banking System and the Federal Reserve System, to preserve for the people the full benefits of the currency provided for by the Congress through the National Banking System and the Federal Reserve System, and to relieve interstate commerce of the burdens and obstructions resulting from the receipt on an unsound or unsafe basis of deposits subject to withdrawal by check, during such emergency period as the President of the United States by proclamation may prescribe, no member bank of the Federal Reserve System shall transact any banking business except to such extent and subject to such regulations, limitations and restrictions as may be prescribed by the Secretary of the Treasury, with the approval of the President. Any individual, partnership, corporation, or association, or any director, officer or employee thereof, violating any of the provisions of this section shall be deemed guilty of a misdemeanor and, upon conviction thereof, shall be fined not more than $10,000 or, if a natural person, may, in addition to such fine, be imprisoned for a term not exceeding ten years. Each day that any such violation continues shall be deemed a separate offense.

(b)(1) In the event of natural calamity, riot, insurrection, war, or other emergency conditions occurring in any State whether caused by acts of nature or of man, the Comptroller of the Currency may designate by proclamation any day a legal holiday for the national banking associations located in that State. In the event that the emergency conditions affect only part of a State, the Comptroller of the Currency may designate the part so affected and may proclaim a legal holiday for the national banking associations located in that affected part. In the event that a State or a State official authorized by law designates any day as a legal holiday for ceremonial or emergency reasons, for the State or any part thereof, that same day shall be a legal holiday for all national banking associations or their offices located in that State or the part so affected. A national banking association or its affected offices may close or remain open on such a State-designated holiday unless the Comptroller of the Currency by written order directs otherwise.

FDR’s actions in 1933 – which effectively seized the gold bullion and coin that was not “rare and unusual” – was not the end of it. In 1947, 13 years later, President Harry S. Truman trumped the earlier proclamations:

No. 2725
Exemption of Member Banks of Federal Reserve System

NOW, THEREFORE, I, HARRY S. TRUMAN, President of the United States of America, acting under and by virtue of the authority vested in me by section 5(b) of the Trading with the Enemy Act of October 6, 1917, 40 Stat. 415, as amended [section 5(b) of Appendix to Title 50], and section 4 of 2Apr. 7, 1947, 12 F.R. 2343, 61 Stat. 1062 Page 3 of 18 the act of March 9, 1933, 48 Stat. 2 [this section], and by virtue of all other authority vested in me, do hereby, in the interest of the internal management of the Government, proclaim, order, direct, and declare that the said proclamations of March 6 and March 9, 1933, and Executive order of March 10, 1933, as amended, are further amended to exclude from their scope banking institutions which are members of the Federal Reserve System; Provided, however, that no banking institution shall pay out any gold coin, gold bullion, or gold certificates, except as authorized by the Secretary of the Treasury, or allow the withdrawal of any currency for hoarding.

But there’s more. Another section of the United States Code, 12 U.S.C.A. Sec 95a, provides that

(1) During the time of war, the President may, through any agency that he may designate, and under such rules and regulations as he may prescribe, by means of instructions, licenses, or otherwise
(a) investigate, regulate, or prohibit, any transactions in foreign exchange, transfers of credit or payments between, by, through, or to any banking institution, and the importing, exporting, hoarding, melting, or earmarking of gold or silver coin or bullion, currency or securities…

The Act of October 6, 1917 is the source of that authority, but there are provisions of Sec 95a that are very modern:

“(4) The authority granted to the President by this section does not include the authority to regulate or prohibit, directly or indirectly, the importation from any country, or the exportation to any country, whether commercial or otherwise, regardless of format or medium of transmission, of any information or informational materials, including but not limited to, publications, films, posters, phonograph records, photographs, microfilms, microfiche, tapes, compact disks, CD ROMs, artworks, and news wire feeds.”(3)

So just 16 or 17 years ago, Congress was still amending the section, and it is highly probable that in an emergent situation, this would be revisited by the government to assure its economic and statehood survival.

Okay, that begs the fair question, can the government grab all of the gold?

Probably not, at least not without paying just compensation – which is a small solace. But what happened in 1933 is that gold (then valued at $20.67 an ounce) was turned in and paid at face value – a double eagle or $20 gold piece received 20 bucks from Uncle Sam in paper, or coin – but not gold bullion or gold coin.

Greater implications of government-owned gold

When all of the gold that was going to be got was turned in, FDR devalued the dollar 59% – he raised the price of gold from $20.67 an ounce to $35 an ounce. (In 1971, President Nixon raised the price of gold to $38 an ounce, and in 1973, it was raised to $42.22 an ounce.)

Let’s look at that statistic for a minute. In 2011, the price of gold per troy ounce jumped at one point above $1,900, yet the entire American gold reserve of 8,133.5 tonnes – 261 million troy ounces – is officially valued at $42.22 an ounce. That makes the American official gold reserves of gold about $11.019 billion – clearly an artificially low figure (i.e., if Fort Knox were emptied with other storage sites, the government would really have a lot more value- anywhere from 35 to 45 times the figures quoted today as being part of the official reserve.)

The Financial Management Service is a bureau of the United States Department of the Treasury. It issues a daily Treasury Statement, and a monthly as well, but the most interesting thing that they compile from our standpoint is the Strategy Report of U.S.- Owned Gold. Just what does that show?

The Status Report of U.S. Treasury-Owned Gold (Gold Report):

• Reflects gold bullion and gold coins owned by the federal government

• Summarizes the fine troy ounces and the book value of gold held by various facilities

• Identifies the value of gold coins and bullion on display at Federal Reserve banks; coins and bullion in reserve at the Federal Reserve Bank of New York; and gold held by U.S. Mint facilities

• The book value of gold is currently $42.2222 per troy ounce. The information used to compile this reporting is received from the U.S. Mint, Federal Reserve banks, and FMS.

Department of the Treasury
Financial Management Service
August 31, 2011

table of U.S. Treasury owned gold

Here’s the reality of it. The 261 million troy ounces have a current official value of $42.22 (or around $11 billion). Boost that fair market value of $1,600 an ounce (or informally [say] 35 times larger, a total value of around $400 billion.

That means over $400 billion in gold is presently in government hands – and billions more find themselves in the hands of the people, which would move to the government. Once in hand per se the dollar could be revalued or left on its own. Either way, though, the average citizen now, as then, would lose out.

Draconian criminal penalties for those who ignored law

Those who did not want to turn in their gold (the current argument is that the government lacks the resources to make it mandatory): the executive order provided for severe, Draconian criminal penalties for non-compliance: a $10,000 fine or 10 years imprisonment, or both. You have to be really unafraid or believe that the government would not prosecute.(4)

Some said that the government only tried to capture a single 1933 $20 gold piece. Not true. They went after the 1933 double eagles – they sued or were sued by collectors who sought to retain the rarity. James A. Stack (no relation to the New York dealer, Stacks’s Rare Coins) was involved in law suits in federal and state court; L. G. Barnard, in Tennessee, was, too. Both lost, even though they had paid a lot for the coin which was both rare and unusual.

The 1933 double eagle wasn’t considered that special. What the Mint viewed it as, however, was a coin that got away – and the Mint faced some pernicious people. But each individual owner was subjected to U.S. Secret Service weapons and other searches. It never was about just the 1933 $20.
There were other cases, too. A sampling going back to the Civil War, when the Act of July 13th, 1861 allowed Treasury Regulation, No. 22, forbidding all transportation of coin or bullion to any State or section declared by the President’s proclamation to be in insurrection (a Supreme Court case affirmed that right); in 1969, an airman was sentenced to 7 years at hard labor for possession and hoarding of gold coin and bullion (U.S. v. Whitfield, 1969 WL 6253), all invited by the changeover. (AFCMR, 1969).

In another case, “An indictment against Gus Farber, a diamond and jewelry merchant of San Francisco, charged… that on or about February 21, 1939, he willfully, unlawfully, and knowingly acquired thirteen genuine $20 gold coins of the United States without a license in accordance with the President’s Order No. 6260, as amended, 12 U.S.C.A. 95 note”, (Farber v. U.S., 114 F.2d 5 , C.A.9, 1940). He was convicted.

In another instance, a 206 troy ounce gold rooster was forfeited to the United States: “Richard L. Graves… was the owner of certain properties in Sparks, Nevada. Included in these properties was the ‘Dick Graves Nugget Casino’. As part of the operation of that establishment, Graves ran a dining room in which the specialty was fried chicken. This room was known as the ‘Golden Rooster Room’. For various reasons, including, among others, the advancement of the interests of his business establishment, Graves developed the idea of acquiring, and showing, a solid gold rooster as a main object of attraction in this room.” (U. S. v. One Solid Gold Object in Form of a Rooster, 208 F.Supp. 99, D.C.Nev. 1962.)

In sum, there’s ample authority – and many cases- allowing for seizure of gold coins and bullion.
What then of the exemptions (and how does that figure in the equation)?

When the government nationalized gold coin and bullion nearly 80 years ago, it gave less than month for Americans to turn in their hoard, allowing an exemption of up to $100 in gold coin per person, and also permitting collectors of “rare and unusual” coin to maintain their collections. (More on this exemption below.)

On March 9, 1933, the statute was amended to declare (as it remains today) that “during time of war or during any other period of national emergency declared by the President,” the President may regulate or prohibit (under such Rules and regulations as the President may prescribe) the hoarding of gold bullion. (Emphasis added). This included gold coinage.

The following day, on March 10, 1933, acting pursuant to the newly emboldened statute, the President prohibited the removal from the United States of “any gold coin, gold bullion, or gold certificates”‘ except in accordance with regulations. (Executive Order No. 6073, 31 C.F.R.Sec 120.3)
Presidential Proclamation No. 2038 (48 Stat. 1689 (1933)) sets the stage for all this:

Whereas there have been heavy and unwarranted withdrawals of gold and currency from our banking institutions for the purpose of hoarding; and

Whereas continuous and increasingly extensive speculative activity abroad in foreign exchange has resulted in severe drains on the Nation’s stocks of gold; and

Whereas these conditions have created a national emergency; [Author’s Note: and a banking holiday would be in the national interest]


Now, THEREFORE, I, Franklin D. Roosevelt, President of the United States of America, in view of such national emergency and by virtue of the authority vested in me by said Act and in order to prevent the export, hoarding, or earmarking of gold or silver coin or bullion or currency, do hereby proclaim, order, direct and declare that from Monday, the 6th day of March, to Thursday, the 9th day of March, 1933, both dates inclusive, there shall be maintained and observed by all banking institutions and all branches thereof located in the United States of America, including the territories and insular possessions, a bank holiday, and that during said period all banking transactions shall be suspended.”

Graphic image of British lawyer, 19th century

“Rare and unusual” coins exempted from 1933 seizure

There is no precise definition of what constitutes a “rare coin.” Executive Order 6260 (issued by FDR on August 28, 1933) recalled all gold coins then in circulation, except “rare and unusual” coins, which were subsequently interpreted to mean as any U.S. gold coin minted prior to 1933. In Coin World Almanac (6th ed. 1990), it is noted that “[T]here are many factors which can make a particular issue coin rare. These include total mintage, the normal attrition of circulation, official and private meltings, and the level of collector interest at the time of issue.” One could argue that subsequent collector interest is also a factor.

As to why “rare and unusual coin” was exempted, it probably didn’t hurt that William H. Woodin was FDR’s Secretary of the Treasury, and that the elfin man just happened to be a serious coin collector. He allowed everyday people to keep $100 in gold coin (it was the Depression, after all) and also allowed retention of “rare and unusual coins” having a “recognized special value to collectors”. (As you will read below, it was actually acting secretary Dean Acheson who did the dirty deed).

Born in May, 1868, Woodin was general superintendent of Jackson & Woodin Mfg. Co., manufacturers of railroad cars; he later became president of American Car and Foundry Co.

A song writer in his spare time (Johnny Mercer was an early collaborator), the Songwriter Hall of Fame lists a winner in that effort: “SPRING IS IN MY HEART AGAIN,” Writer: Johnny Mercer, William Woodin; Publisher: EMI Miller Catalog Inc./Johnny Mercer Foundation”. Another song: the “Franklin Delano Roosevelt Victory March,” which was played at the inauguration.

A lifelong Republican, Woodin met FDR as a fellow trustee of the Warm Springs Foundation; they became friends, and Woodin moved to the inner circle before the 1932 presidential campaign. He was quickly confirmed as Treasury secretary, taking office a day after FDR took the presidential oath, March 5, 1933. Woodin’s collection of pattern coins became the model for the Adams-Woodin numbering system (used for two generations before Judd superceded it), and he was instrumental in obtaining the collector’s exemption.

As mentioned earlier, authority to issue these enactments was derived from the Trading with the Enemy Act of 1917 and the Emergency Banking Act, found in title 12 of the U.S. Code in section 95. Even after 1977 amendments to the trading legislation, these other provisions remain in effect.

However, the Emergency Banking Act states what powers the President may invoke during a national emergency with respect to banks which are members of the Federal Reserve System – it does not give the President authority to declare a national emergency for purely domestic reasons.

Originally, the Treasury secretary had the right to issue regulations governing private gold ownership (including coins). That in substance was that “Gold coin of recognized special value to collectors of rare and unusual coin may be acquired and held, transported within the United States, or imported without the necessity of holding a license therefor. Such coin may be exported, however, only in accordance with the provisions of Sec. 54.25 of title 31 of the Code of Federal Regulations.

There were initial provisos as well (which changed over time):

“(b) Gold coin made prior to April 5, 1933, is considered to be of recognized special value to collectors of rare and unusual coin.

(c) Gold coin made subsequent to April 5, 1933, is presumed not to be of recognized special value to collectors of rare and unusual coin.”

(Editor’s note: This 1954 codification broadened and clarified the definition of “recognized special value to collectors of rare and unusua coinl” to any gold coin minted before 1933.)

Later changes included these:

“The current licensing policy will be retained for coins minted after January 1, 1934. Gold coins may still be detained at Customs stations for examination as to their authenticity. Counterfeit coins may not be imported and are subject to seizure. Restrikes, that is modern reproductions of gold coins bearing a much earlier date, will also not qualify for importation. Therefore, travelers and coin collectors should be especially careful that the coins they purchase abroad are genuine.” (Please see original Treasury Department notice.)

Management of these gold coins was undertaken by the Office of Domestic Gold and Silver Operations of the Treasury Department. Dr. Leland Howard was the first director; Thomas Wolfe was the last to hold the title as the activities of the department were phased out in the early 1980’s. Product of gold confiscation was gold melting; the coins were melted into bricks that ultimately found their way to Fort Knox. Although the Mint had a program from the mid-1860’s until about 1950 to melt or re-coin copper, silver and gold coinage, the majority of gold coins were taken in and destroyed in a Seven year period (1922-1939):

table of gold coins melted

The accompanying chart that I prepared, based on original research, shows for example that about 174 million double eagles were minted between 1849 and 1933. Of these, 67 million (or 39%) were melted by the Mint. The overwhelming majority of those were during the seven year period 1933-1939 (97.7 percent, in fact).

The other denominations are self-explanatory; data is derived from the annual reports of the director of the mint, a Treasury Department document. All told, over 124 million coins were melted through the years (102 million gold coins were melted as a result of government assistance from 1933- 1939).

These coins are scarce, but the surviving coins (pre-1933) have another factor that militates in their favor as a collectible and potentially exempt from a future seizure, the government found that they were “rare and unusual”, and hence were worth well beyond their face value. Most believe that if the government were to favor gold or silver confiscation again, the “horseshoe” brigade would want to quickly get it right.

That the Treasury Secretary would exempt “rare and unusual” coin from seizure asks more questions than it answers. What precisely is a “rare” coin? There is no precise definition of what constitutes a “rare coin.”

Citizens once had the right to deposit silver or gold bullion with the mint and receive, in return, a full measure of precious metal coinage, less the cost of coining(5). The government and the population could thus control currency supplies. The right to deposit these metals was called “free coinage”, though this was hardly so since there was a modest charge by the Mint for the service. Free coinage of silver ended with passage of the Coinage Act of 1873; general circulation gold coinage itself was halted in 1933, and created the first modern government regulatory function: controlling those numismatic coins which were exempted from an otherwise nation-wide recall of gold coins.(7)

With the 1933 gold recall, all but rare and unusual coins were required by law to be turned in to the government in exchange for paper currency.(8) Executive Order 6260 provided in pertinent part that “no return…[is required of](b) gold coins having a recognized special value to collectors of rare and unusual coin…” There were other limitations. Because more than $1.5 billion in coins were melted, calculated at their face value, millions of coins were forever destroyed.(9)

Collector exemption leads to rewards for astute period gold owners

Collectors knew, of course, that by virtue of their status as a collector, they were able to continue to hold gold coins, even Quarter Eagles (though no more than four of each date and mint mark) while other citizens were forced to surrender their coins. Each of these pieces had been produced at a time when gold was valued at $20.67, and a $20 gold piece contained $19.99 worth of gold. So, while it was illegal for most Americans to own gold, that didn’t stop entrepreneurs like Louis Eliasberg of Baltimore or Harold Bareford, a New York attorney who represented Warner Brothers Pictures, from holding gold. It also didn’t stop John Jay Pittman, then a salaried chemical engineer from Rochester, New York, who worked as an employee of the Eastman Kodak Company.

photo of author with gold collectorsJohn Jay Pittman, David L. Ganz, Rep. Wright Patman (Chairman, House Banking Subcommittee) a
nd Rep. Leonor Sullivan / 1973

They each exploited a loophole that permitted coin collectors – actually those who acquired “rare and unusual coin” – to keep up to five specimens of each date and mintmark without being in violation of the Executive Orders that otherwise recalled gold coinage to the melting cauldrons of the 1930’s. (Bullion ownership itself – bars, wafers and similar items – were prohibited in all but a few instances)

When Stack’s sold the Harold S. Bareford collection of United States gold coins at public auction on Dec. 1, 1978, the year Bareford died, it completed a transaction that had begun 45 years earlier when Bareford, the former general counsel to Warner Brothers, used his knowledge of the law to buy gold at a time that it was illegal to do so – unless the coins were “rare and usual” and the person was a collector of “rare and unusual coin”.

Between 1941 and 1954, Bareford bought gold bullion in the form of coins. Some were true rarities, but most coins were worth not much over their devalued dollar’s gold worth. (FDR devalued the dollar by about 59%, raising the price of gold form $20.67 an ounce to $35; in the process, a $20 gold piece containing .9675 troy ounces pure gold suddenly had $33.86 worth of gold in it).

Many of Bareford’s coins were modestly priced over their gold cost. An 1836 $5 gold piece (in brilliant uncirculated condition) was bought by Bareford for a little more than double face value ($10.20).

To go to the end of the story, Bareford’s gold coin collection (he also collected English coins and non-gold U.S. coins) was sold in a 242 lot offering that cost the lawyer $13,832.15 over a period of about 15 years. The 1978 resale price was an incredible $1,207.215. (10)

The story is well worn, and many times told, but nearly all of my prior focus has been on the dramatic results and the major rarities and high quality gold coins that Bareford bought – and how these highly rated coins jumped in value.

Back in 1978, when I covered the auction sale as a newspaper writer and columnist for a weekly numismatic periodical, Bill Bareford, Harold’s son, gave me something unique: a listing of the actual cost of each of the gold coins in his father’s collection in addition to its pedigree (or source or provenance).

Similarly, many of Eliasberg’s coins had a provenance written into the catalogue description. Pitman’s was the best documented, and when each of the three is looked at in tandem, it’s clear that they initially invested in gold coins that did not cost much more than their bullion value. This offered an excellent return on investment over time.

Pittman’s acquisitions were well known because many were displayed at a “show and tell” at the Rochester Coin Club, Others were bought at public auction, and each told a story. Pittman’s collection was sold in 1997-1999 in a series of sales by David W. Akers for over $40 million. Nice story, but the bullion or near-bullion prices paid by Pittman at acquisition compared with their still phenomenal results.

Here are some gold half eagles ($5 gold pieces) from the Pittman collection, all of the 1850’s, and each purchased on bullion or near-bullion conditions. Note that the rate of return on each (compounded) is substantial for the bullion, bullion-like and non-bullion coin (which is offered just as a point of contrast). John Jay Pittman – selected bullion and near-bullion coins (sold October, 1997).

Table of coins owned by JJ Pitman

Simultaneous with the FDR gold recall came a devaluation of the dollar,(11) which meant that the price of gold was raised from $20.67 and ounce to $35.00. Since each $20 gold piece now contained $33.86 worth of gold, a significant advantage was attained by those collectors who retained their coins.

Government clarifies the definition for “rare and unusual coins”

By September, 1933, the Treasury Department had prepared and issued a compilation of regulations in booklet form. Prepared under the signature of Dean Acheson, then Acting Secretary of the Treasury, the document is entitled “Gold Regulations Prescribed by the Secretary of the Treasury under the Executive Order of August 28, 1933 Relating to the Hoarding, Export, and Earmarking of Gold Coin Bullion, or Currency and to Transactions in Foreign Exchange and the Executive Order of August 29, 1933 Relating to the Sale and Export of Gold Recovered from Natural Deposits,” a document consisting of more than 13,000 words. (Acheson, who later became Truman’s Secretary of State, was forced to resign because of his opposition to FDR’s inflate-the-currency with gold policies).

Many collectors subsequently sought to acquire post-1933 coinage, which they claimed was rare and unusual, and eventually, the Treasury Department set up an Office of Domestic Gold & Silver Operations (ODGS) to deal with the many claims. Into the 1970’s, the ODGSO was still opining which gold coins were legal to own, and which were not.

In May of 1969, the Treasury clarified (by issuing a list) of those coins that were eligible for importation as “rare and unusual”; more than 200 gold coins made this list. By 1971, Mexican gold coins came off because the country was issuing restrikes. Then, starting in 1972, intense pressure began to mount in Congress to repeal the gold ownership prohibitions; this would become a keen political issue in conjunction with the debate concerning America’s bicentennial coin program.(12) But it was in December,1973 that the ODGSO issued a famous memo that every collector of gold coins issued prior to 1960 should remember even today:

The GOLD COIN STATEMENT was specific in stating that

“All foreign gold coins minted 1934 through 1959, if genuine and of legal issue, are now considered to be of such recognized special value to collectors of rare and unusual coins as to warrant the issuance of a general license for their importation into the United States under section 54.20(e) of the gold regulations for numismatic purposes.”

That was a wrap, for it meant that importation of coins made prior to 1960 were “rare and unusual” and thus exempt under the 1933 and 1934 Executive Orders. It would be highly unlikely that the government would put somebody to his or her detriment after giving it an “okay”, which is why, even today in 2011 and beyond, such importance is placed in these coins.

To summarize the feelings of some knowledgeable observers, the government’s position in declaring the coins “rare and unusual” was something that would be hard to refute; in other words, the clock could not be un-rung – and this list of coins prior to 1960 was virtually immutable.

The modern era in gold ownership

By December 31, 1974, private gold ownership was legal in every form, and new marketplaces began to open up. Collectors were able to buy bullion coins – pieces made primarily for the metallic content.

Legal tender coins like the South African Krugerrand proved so successful that millions were sold each year in the American market,(13) until ultimately in late 1986, the U.S. Government itself became a competitor of the by-then-banned Krugerrand(14) Congress authorized an American Eagle bullion coin in both gold and silver.(15) Amid much fanfare, the gold bullion coins were introduced in September, 1986, and, by year’s end, its silver counterpart was minted. Complete sell-outs of proof versions of both of these popular 1986-dated pieces occurred, with uncirculated sales of millions of pieces being far beyond the projections of the mint, or its private industry distributors. Tens of millions of the silver coins had been issued by 1991; gold coin sales, while less, were still considerable.

So that brings us to the second decade of the 21st century. See what this economic scenario sounds like. The U.S. Mint’s bullion program has had more than $2.8 billion in bullion sales in 2010. Gold coins that once had virtually the same value as stamped on their face or reverse – the double eagle or $20 gold piece contains $19.99 worth of gold – now have a worth that is substantially more; way more. The double eagle’s worth on one day this year was over $1,800 in gold content, or more than 90 times face value.

A British sovereign, once the equivalent of one pound sterling or $4.86 when gold was valued at $20.67 an ounce) now is worth over $350 a coin. The ubiquitous 20 Franc coin (used in many countries under a different name: 20 Lire in Italy, the Vrenelli (20 Fr. Switzerland), and so forth, once $3.73 when gold was priced at $20.67 an ounce (1837-1933, more or less), today is valued in the range of $300 a coin, or more.

And that doesn’t count numismatic value.

Let’s look at this scenario:

It was a dark and stormy economy. Unemployment (including the discouraged workers) exceeded 18 percent. The stock market, in the midst of a trading session, suddenly lost steam and the Dow Jones Industrial Average went into a steep decline that made some wonder if it would – or could – ever come back. Gold was positively volatile.

The first three sentences sound a lot like a precursor to the Great Depression – and indeed, read like a pot boiler of the early 1930’s. And all this may sound a lot like something that you’d read in the newspapers of the late 1920’s, after the Crash that saw the Dow decline by 25%; but it turns out that it also could be that day in May, 2010 when the Dow plummeted by nearly 1,000 points at mid-day. Or that recent day in September, 2011 when gold dropped over $100 an ounce and silver plummeted from $49 to $30.

Actually, all the rest of the economic implications is contemporary, 21st century – and 1933 – wrapped into one.

In either case, the result could be the same because the “Trading with the Enemy Act of 1917” is still good law, and could still be used by the President of the United States, as FDR used it in 1933 to nationalize domestic gold and silver coin and bullion and JFK used it during his administration to require Americans owning gold coin and bullion abroad to turn it all in.

Noone can say for sure what the future will bring. For all the precedent that argues against it – with surviving morsels of gold, the siren call of seizure could be stirring even as this is being written. We’ve managed to annoy every segment of the government that would be likely to support, and enforce, that type of order.

Ultimately, like the 1930’s litigation that pursued a dozen 1933 double eagles in as many lawsuits and courts, the “near seizure” of all of these gold coins is predicated on how the government views the threat; how big or expansive it is, and whether or not a chink in the mint’s armour translates to an in-place abolition of the position – is it the gold, what it represents, or that the holders found a way around a loophole. (Either way the judgement will need to be determined).


Here’s what I conclude:

FDR’s presidential seizure of gold specifically exempted “rare and unusual coin”. That didn’t mean “expensive”, and it was not a synonym for “pricey”.

Some of the coins that collectors like John Jay Pittman, Louis Eliasberg, and Harold Bareford bought for their collection were remarkably inexpensive. Pittman bought a 1908 $5 gold piece in about uncirculated condition for just $10 – but it was still a “rare coin”.

In my book, Planning Your Rare Coin Retirement (1998), had three portfolios. The first portfolio included a gold coin in it, and I suspected that I was going to be challenged on that, so I put together a portfolio of 100 gold coins that were then available for around $100 or less. Because a number of collectors and investors who acquire gold coins also go for platinum coins, several of them are included.

(Please see full table: World Gold Coin Portfolio)

What they all have in common is that even though they mostly have modest mintages, they all are slavish to the precious metals market. In other words, their value is determined primarily by movement in the underlying precious metals value. When it goes up, so do they.

The average coin in the 1997 gold and platinum portfolio cost $86. (The prices for these coins were not done from catalogues but from real advertisements in numismatic periodicals that included World Coin News, Numismatic News, Coins Magazine and other periodicals that included magazines and newspapers). The individual gold and platinum pieces had a portfolio value of about $9000.

When Planning Your Rare Coin Retirement was written in 1997, the world was a different place. September 11 had not yet happened; the 1993 World Trade Center attack was already a distant memory. Precious metal was at an awkward stage; gold was $335 an ounce, silver weighed in at $4.54, and platinum was $388 an ounce. The coin prices reflected this reality.

A few more stats: The Dow Jones Industrial Average was 7750, Standard and Poors was 970, and Farmland in Iowa averaged $1,835 an acre. The Consumer Price Index stood at around 160, and Treasury bills maturing in less than a month had a rate of 5.26%.

The value in October, 2011 of this same portfolio was valued at nearly $27,800 – a gain of over threefold over the intervening dozen years – with results of simple interest of about 16 percent annually and a compounded rate of return of about 9.37%, not bad by any stretch of the imagination in the 1998 to 2011 time period.


Here’s the bottom line point. There are powerful interests that don’t want you to plan for your gold coin retirement. They want your investments in a different media. The same is true if you want to buy gold bullion or gold coins. It may be that gold seizure (or the fear of it) is how they move your investment choice, or it could simply be what naturally occurs in a Darwinian selection of investment vehicles (survival of the fittest).

Regardless, what’s clear to me is that if you are serious about using gold coins as an investment vehicle – whether they are French Roosters, Swiss Vrenelli, British Sovereigns or an American quarter eagle (or even double eagle) – you need to consider where gold bullion versus “rare and unusual” gold coin fits into your financial strategy.

Editor’s Note: As a caveat, it needs to be stated that USAGOLD does not in any way intend this to be a formal, individualized legal opinion, but rather an overview to help you form your own opinion on whether or not pre-1933 gold coins should be included in your hedging plan. Furthermore, we are not stating categorically that pre-1933 gold coins would survive confiscation, nor are we stating that another confiscation is likely or imminent.

Copyright 2011 by David L. Ganz, all rights reserved. May not be copied or distributed without consent of the author, and licensing fee paid therefore.

*David L. Ganz (biographical information). The Author, an attorney who practices in New York, New Jersey and D.C., may be contacted at [email protected]. Additional biographical information may be found at, the Martingale-Hubbell website or

Reprinted with permission.

Notes to text (Ganz)

1. I am indebted to Professor Henry Mark Holzer, author of “How Americans Lost the Right to Own Gold and Became Criminals in the Process”, 39 Brooklyn L. Rev. 517 (1973) for many of the ideas expressed by me since reading his remarkable article nearly 40 years ago.

2. Apr. 7, 1947, 12 F.R. 2343, 61 Stat. 1062

3. 1994 Amendments. Par. (4). Pub.L. 103-236, Sec. 525(b)(1) added this section.

4. The law books are littered with cases of individual protestors who frequently go to jail for a substantial period of time so that the government can make its point.

5. See, e.g., Mint Act of April 2, 1792, ch. 16, 1 Stat. 246, sections 14-15; Coinage Act of 1837, ch. 3, 5 Stat. 136, sections 14-20.

6. Ganz, “Coinage Act of 1873 and the Demonetization of Silver,” 86 The Numismatist 2003 – 2009 (1973).

7. Executive Order 6260 of Aug. 28, 1933 recalled all gold coins, but exempted “rare and unusual gold coins.” What was rare, or unusual, constituted a regulatory function of the Treasury Department in succeeding years. Millions of coins were melted, Ganz, “The Age of Gold”, 86 The Numismatist 1177, 1179 (1973). Gold commemorative coinage resumed in 1984, and bullion coinage was produced starting in 1986, see, 31 U.S.C. Sec 5112(a)(7) – (10).

8. See, e.g., Stack v. Strang, 94 F. Supp. 54 (SDNY 1950), rev’d on other grounds 191 F.2d 106 (2d Cir. 1951), later history 112 N.Y.S.2d 197 (Sup.Ct. N.Y. 1952).

9. Ganz, “The Age of Gold”, 86 The Numismatist 1177, 1179 (1973).

10. Bareford also held onto other U.S. coins, including an 1804 silver dollar. Yes, he did well with his gold bought at nearly bullion, but didn’t do badly with a nova, high powered rarity. Bareford bought the 1804 dollar out of the Charles Williams Sale (1950) for $10,000. After his death, it sold (in 1981) for $280,000 at a Stack’s auction, where Ed Milas of RARCOA was purchaser. The rate of return: 11.3% compounded annually.

11. 1934 Proc. No. 2072, Jan. 31, 1934, 48 Stat. 1730 revalued the dollar to $35 an ounce (15-5/21 grains of .900 fine gold).

12. Ganz, “Tribute to 200 Years of Freedom: The Story of How the United States Got Its Bicentennial Coinage,” 88 The Numismatist 499, 1013-1015 at notes 385-389 and accompanying text (1975), subsequently reprinted in revised form as 14 Bits.

13. See, e.g., Modern Gold Coinage 1983 at 24 (Gold Institute publication).

14. See, Executive Order 12535 (Oct 1, 1985), and 31 CFR Sec. 545.101 et seq., conveniently reprinted in “Numismatics and the Law”, Coin World Almanac, 6th ed., at 60 (1990).

15. Pub. L. 99-61, Title II 1 section 202, 99 Stat. 115 (July 9, 1985); Pub. L. 99-185 (Dec. 17, 1985), 99 Stat. 1177, 31 USC Sec. 5112 (a)(7)-(10) and (e).

Graphic of Client Portal connection: Ready to invest. Start here.

A word on USAGOLD – USAGOLD ranks among the most reputable gold companies in the United States. Founded in the 1970s and still family-owned, it is one of the oldest and most respected names in the gold industry. USAGOLD has always attracted a certain type of investor – one looking for a high degree of reliability and market insight coupled with a professional client (rather than customer) approach to precious metals ownership. We are large enough to provide the advantages of scale, but not so large that we do not have time for you. (We invite your visit to the Better Business Bureau website to review our five-star, zero-complaint record. The report includes a large number of verified customer reviews.)


[email protected]

Disclaimer – Opinions expressed on the website do not constitute an offer to buy or sell, or the solicitation of an offer to buy or sell any precious metals product, nor should they be viewed in any way as investment advice or advice to buy, sell or hold. USAGOLD, Inc. recommends the purchase of physical precious metals for asset preservation purposes, not speculation. Utilization of these opinions for speculative purposes is neither suggested nor advised. Commentary is strictly for educational purposes, and as such USAGOLD does not warrant or guarantee the accuracy, timeliness or completeness of the information found here.

Posted in Gold Classics Library |

Ten rules for investing in gold-Hathaway

row of books on library shelf
A Gold Classics Library Selection

Ten Rules For Investing In Gold

by John Hathaway

Editor’s Note: Few over the years have better articulated the often misunderstood yet compelling case for owning gold like Sprott Asset Management‘s John Hathaway. Below, in short form, he offers ten nuggets of practical wisdom for those contemplating gold ownership. “Gold,” he says, “is a controversial, anti-establishment investment. Therefore, do not rely on conventional financial media and brokerage house commentary. In this area, such commentary is even more misleading and ill-informed than usual.” We first published Hathaway’s “Ten Rules…” back in the 1990s when he was a fund manager at Tocqueville Funds. They have held up well during their nearly 25-year tenure at USAGOLD and still attract a steady flow of visitors.

“Gold is a controversial, anti-establishment investment. Therefore, do not rely on conventional financial media and brokerage house commentary. In this area, such commentary is even more misleading and ill informed than usual.” – John Hathaway

1. An investment in gold should be based on macroeconomic considerations. If one expects or fears rising inflation, destabilizing deflation, a bear market in stocks or bonds, or financial turmoil, gold should do well and exposure is warranted.

2. Understanding the internal dynamics of the gold market can be helpful as to investment timing issues. For example, the weekly position reports of commodity trading funds or sentiment indicators offer useful clues as to entry or exit points for active trading strategies. Reports on physical demand for jewelry, industrial, and other uses compiled by various sources also provide some perspective. However, none of these considerations, non monetary in nature, yield any insight as to the broad market trend. The same can be said for reports of central bank selling and lending activity. Central banks are bureaucratic institutions and in their judgements they are essentially market trend followers.

3. Excessive reliance on trading strategies to generate returns can be dangerous and counterproductive. Returns from a “buy and hold” strategy should be more than sufficient to compensate for the inherent volatility. Many who have tried to outsmart this market by hyperactive trading have under performed. Success is dependent in large part on the occurrence of “fat tail” events that lie outside the parameters of trading models.

4. A reasonable allocation in a conservative, diversified portfolio is 0 to 3% during a gold bear market and 5% to10% during a bull market.

5. Equities of gold mining companies offer greater leverage than direct ownership of the metal itself. Gold equities tend to appear expensive in comparison to those of conventional companies because they contain an imbedded option component for a possible rise in the gold price. The share price sensitivity to a hypothetical rise in metal price is related to the cash flow from current production as well as the valuation impact on proven and probable reserves.

6. The carnage of the last twenty years has simplified the task of individual stock selection because so few have survived the gold bear market. Although a rising tide may lift most boats, financial statements should be reviewed with special attention to hedging arrangements that could undermine participation in higher gold prices or even jeopardize financial stability. Individual stock selection is less important than identification of the primary trend.

7. Even though gold itself is a conservative investment, “gold fever” attracts a crowd of speculators, promoters, and charlatans who only want to separate investors from their money. Avoid offbeat “exploration” companies with little or no current production and gargantuan appetites for new money.

8. Bullion or coins are a more conservative way to invest in gold than through the equities. In addition, there is greater liquidity for large pools of capital. Investing in the physical metal requires scrutinizing the custodial arrangements and the creditworthiness of the financial institution. Do not mistake the promise of a financial institution to settle based on the gold price, for example, a “gold certificate” or a “structured note”, (i.e. derivative), for the actual physical possession of the metal. Insist on possession in a segregated vault, subject to unscheduled audits, and inaccessible to the trading arrangements or financial interest of the financial institution.

9. Gold is a controversial, anti establishment investment. Therefore, do not rely on conventional financial media and brokerage house commentary. In this area, such commentary is even more misleading and ill informed than usual.

10. Don’t settle for too little. Should outlier events now deemed unimaginable by consensus thinking actually occur, the price target for gold would be several multiples of its current depressed price. Gold represents insurance against some sort of financial catastrophe. The magnitude of the upside is a function of the amount of paper assets that would be converted to gold irrespective of price.

by John Hathaway, Sprott Asset Management

Reprinted with permission.

Graphic of USAGOLD client portal connection. Ready to invest. Start here.

A word on USAGOLD – USAGOLD ranks among the most reputable gold companies in the United States. Founded in the 1970s and still family-owned, it is one of the oldest and most respected names in the gold industry. USAGOLD has always attracted a certain type of investor – one looking for a high degree of reliability and market insight coupled with a professional client (rather than customer) approach to precious metals ownership. We are large enough to provide the advantages of scale, but not so large that we do not have time for you. (We invite your visit to the Better Business Bureau website to review our five-star, zero-complaint record. The report includes a large number of verified customer reviews.)


[email protected]

Disclaimer – Opinions expressed on the website do not constitute an offer to buy or sell, or the solicitation of an offer to buy or sell any precious metals product, nor should they be viewed in any way as investment advice or advice to buy, sell or hold. USAGOLD, Inc. recommends the purchase of physical precious metals for asset preservation purposes, not speculation. Utilization of these opinions for speculative purposes is neither suggested nor advised. Commentary is strictly for educational purposes, and as such USAGOLD does not warrant or guarantee the accuracy, timeliness or completeness of the information found here.

Posted in Gold Classics Library |

Layman’s Guide McMaster

row of books on library shelf
A Gold Classics Library Selection

A Layman’s Guide to Golden Guidelines for Wise Money Management

Gresham’s Law, Say’s Law, Rule of 72, Marginal Utility, Diminishing Returns, Regression to the Mean, Unintended Consequences, Murphy’s Law, Occam’s Razor, Law of Attraction, Law of Polarity, and more

by R.E.McMaster

Editor’s note: There is an old saying that not all that glitters is gold — as in the gold coins many of you have held in your hands. There is another kind of gold that inhabits the practical wisdom of the ages. In today’s “go-get-’em,” “read-it-and-forget-it” world of everyday web browsing, it can be a challenge to separate the run of the mill from the meaningful. It is with that thought in mind we offer this compendium of the rules and laws of finance and investment by long-time market analyst R.E. McMaster. Formerly the writer/editor of the widely-circulated The Reaper newsletter, McMaster is known for his occasional forays into the realm of economic philosophy and history. I think you will agree with me that these skillfully condensed descriptions are indeed meaningful — a wellspring of knowledge worth reading, re-reading and passing along to friends and family, especially the kids and grandkids.

Ed Stein graphic of bad money driving out good - Gresham's Law

Gresham’s LawBad money drives good money into hiding. Example: Fiat funny money created by the central banks and made compulsory to use by the governments causes real money of substance, gold and silver, to rise in price in terms of such fiat currency and to be hoarded, to disappear from circulation. Corollary: The Cantillon Effect – Those who get the newly created central bank money first, benefit most (banks).

The Golden Rule – Whoever has the gold makes the rules.

Pareto’s Law – The 80-20 Rule. 80% of the effects stem from 20% of the causes. Example: 20% of the pea pods will contain 80% of the peas. 20% of the people will own 80% of the land. 80% of your business will come from 20% of your customers. 20% of your customers will give you 80% of the grief. The markets will tend to change trend when 80% are bullish and only 20% are bearish, and when 80% are bearish and only 20% are bullish. If someone can accomplish a task 80%+ as well as you can do it, and you have the ability to delegate the task to them, then by all means delegate. Great accomplishments, great fortunes, are made by leveraging one’s time/life/money, by making use of OPE (Other People’s Energy) and OPM (Other People’s Money). (Money is representative of stored energy/life/time.)

Ed Stein cartoon graphic – Say's Law

Say’s Law – Supply creates its own demand. Production is more important than and precedes consumption. Production is the source of demand. Think of the invention of the personal computer, the invention of the smart phone, the tilling of virgin soil. This means savings has to exist in a society to be able to create the means of production that in turn results in consumption. Taxes and consumption, of their very nature, are non-productive.

The Rule of 72 – Compound interest is the 8th wonder of the world. Want a quick rule of thumb to know how long it takes money to double? Simply divide the annual interest rate into 72. So, if you have money out on interest at 9%, it will take 8 years for your original amount to double (72 divided by 9%). It likewise means if you are borrowing at an annual rate of 9%, if you pay nothing on your loan, the amount you owe will double in 8 years. Debt is death and slavery, and implicitly assumes you can predict the future accurately regarding payback. Better to be debt free, pay off and burn the mortgage, to live free. Debt should primarily be used for productive purposes, for investment in businesses, practical education and improvement in viable skills. And never forget that for most of us, making money is a byproduct of doing something else well, productively.

Ed Stein cartoon graphic - Law of marginal utility

The Rule of Marginal Utility – Simply put, an additional unit of a product you own, such as your next pair of shoes, normally has reduced marginal utility, less value preference, gives less satisfaction. For example, if you own 10 pairs of shoes, how much satisfaction, how much happiness, does the 11th pair of shoes bring you? What is the marginal utility of the 11th pair of shoes? Marginal utility is the change in total utility divided by the change in quantity. Change always occurs at the margin, where the action is, making decisions based upon small changes in resources, such as “How should I spend the next hour?” How should I spend the next dollar?” When things change, it happens in small incremental movements. It occurs in the present, in the now, at the margin. The extent to which we can control our lives, it occurs at the margin. As much as possible, we want to keep our inner core personally, professionally, financially and investment-wise intact, and only make meaningful changes/expansions at the margin where/when the potential return, weighed against opportunity cost, is several times the time/energy/ money/ emotion we expend. We want a large return in exchange for a minimal investment at the margin. If we are patient, such opportunities appear in our lives at the margin from time to time. We make money when we buy right, at the right price and time at the margin.

Ed Stein cartoon graphic – law of dimishing returns

The Law of Diminishing Returns – Basically, this occurs when adding more of something to the production process (while everything else is held constant) yields less return that it did before, and at some point adding a significant amount of something can reduce return/production. For example, adding fertilizer to a field increases crop production. But at some point, adding more fertilizer yields less increase in crop production (diminishing return) than previous fertilizer additions. And at some point, adding too much fertilizer to the field will even reduce crop production. The Law of Diminishing Returns effective states that “with all other factors remaining the same, the addition of more units of one factor of production will at some point result in a lower yield per unit. There is always an optimum combination of factors of production which yields the highest return per unit of production. Increase one of these units beyond that optimum and the yield provided starts to drop. This does not necessarily mean that the amount of output drops. It means that the output is now not being produced in the most efficient manner. Factors of production are being wasted” (Bill Buckler). It is wise to optimize not maximize.

Central banks have created too much money and have long passed the point of diminishing returns where the central bank created monetary stimulus creates meaningful economic activity. With each new stimulus injection Bernanke makes, the equity boosting effect becomes less and less in the stock market. (Law of Diminishing Returns) Also, why invest in other people unless the return is synergistic, yielding more than the input? Certainly it is a waste of time, energy, money, words, mentality and emotion to invest in people beyond where the Law of Diminishing Returns kicks in.

Regression to the Mean – Reversion to the mean, often called “regression to the mean”, is an idea/theory suggesting that prices and returns eventually move back toward the mean or average. Put differently, the greater the deviation of a random variate from its mean, the greater the odds (probability) that the variate recorded next will deviate less, and that over time the variates will tend to return to the mean. For example, if the average rate of return historically is 3%, over time an investment that yields 7% will face competition by way of new entries into the market seeking that juicy 7% return and eventually real returns in this particular investment will gravitate back toward 3%. Another example: When prices in a trading market rise quickly, way above their long-term trend line and moving averages, prices will eventually tend to decline back down toward their long-term trend line and moving averages.

Ed Stein cartoon graphic - law of unintended consequences

The Law of Unintended Consequences – Things occur differently from what was expected, usually detrimental, negative and/or perverse; outcomes that are different, unexpected and unanticipated from a purposeful action. Intervention in a complex system often creates unanticipated and undesirable outcomes. Man’s plans go awry, with spin-offs (consequences) that are neither expected nor anticipated when man tampers with complex systems. For example, when the government intrudes into the economic marketplace or social structure in an attempt to solve a problem, it often creates a number of greater problems and distortions long-term that were neither anticipated nor desirable. The unintended and unanticipated bad consequences of well-intended government welfare programs are numerous and have been well-documented. Remember Skynet in the Arnold Schwarzenegger “Terminator” movies? Unintended consequences. The use of GPS in agriculture? Unintended consequences (positive).

Murphy’s Law – If something can go wrong it will. Anything that can go wrong will go wrong. This why in nearly everything we do, we need to factor in and create a 20% buffer zone, what I call my “fat zone”, my reserve zone, whether it is time, money, attention, etc. Whatever it is, like with a wedding, Murphy’s Law kicks in; things go wrong, take longer, costs more than originally planned. Moreover, if you have to work too hard to make something happen/work front end, if you have to put too sharp a pencil to it literally or figuratively to make it work, odds are it will not work out, whether it is an investment, business project, relationship, etc., it likely will fail down the road. Making something happen by forcing it is usually the road to ruin and failure due to Murphy’s Law. Forcing things usually breaks things. Life is full of curve balls and unexpected occurrences. We can never know the future perfectly, often little at all, so predicting the future, which is what an entrepreneur attempts to do when he creates supply anticipating demand, is a high-risk activity.

Mankind is imperfect, makes mistakes, seldom accurately anticipates most of the problems that arise in any endeavor or relationship in life. So, if we play good defense, the offense will tend to take care of itself. If we practice good money management and cut our losses short in investments, business ventures and relationships, long-term the profits will tend to take care of themselves and appear. Why worry? 90% of worries are derailed before they ever reach us. The future is seldom what we expect. But, truth does kill those who hide from it. If we choose to live life with blinders on, or by wearing rose-colored glasses, or by burying our heads in the sand, odds are we will surely get blind-sided and suffer.

The Law of Attraction – What we need we combat, what we fear we attract. This is a law of human nature. What we broadcast in the infrared range of the light spectrum from the imprinted layered frequencies of our ancestors DNA/RNA (at least 10 generations), as well as our own flaws and errors (sins) from living our lives, comes back to us as we are all infrared receivers as well as broadcasters. What goes around comes around. We reap what we sow. We tend to eat our allergies, food wise and emotionally/spiritually. Birds of a feather flock together. Like attracts like homeopathically. When we become the right person, we attract and hold the right people. We are only vulnerable where we are defensive/fearful.

The Law of Polarity – Everything that is healthy in nature has polarity (+,-), harmonically, comprehensively, synergistically so. The stronger the polarity the greater the vitality, particularly as polarity is held in dialectic tension/balance, like both the north and south poles on either end of a bar magnet. Other examples of this polarity of dialectic tension include, polarity of the one and the many (the collective/community and individuals), yang and yin in the Eastern culture, the north and south poles of the earth, the acid and alkaline nature of the soil, the sodium/potassium exchange at the cellular level, the positive and negative ions in the atmosphere, and in relationships feminine & masculine.

Ed Stein cartoon graphic - law of entry and exit

The Law of Entry & Exit – It is easy to get into most things, but usually for more difficult to exit most things. Example: It is easy to buy a house, buy a car, get married, get pregnant, take out a loan, speak in anger. It is not so easy to sell a house, sell a car, get divorced, handle an unwanted pregnancy, pay off a loan, repair the damage caused by hurtful words. So, use caution, go slow, before getting involved or engaged with anything. Think things through, research, analyze, get advice, reflect, ponder, run the numbers. Pause before you speak. Accordingly, “Look before you leap” is more important than “He who hesitates is lost.” Money is made, relationships are long-term meaningful, when we “buy right,” when we take our time, are cautious, do our research, allow time to percolate important factors to the surface, up from our subconscious for our consideration, and finally the decision becomes easy and obvious, and we gracefully step into it without stress because we have “looked before we leaped.” We all have to live with the consequences of our words and actions.

Ed Stein cartoon graphic - Peter principle

The Peter Principle – We tend to be promoted to our level of incompetence. We are good at what we do, successful, and so we are promoted again and again until we reach the level where we are in over our heads, until we have reached the level where we are incompetent. This is why it is often wise to quit while we are ahead, or to choose to stay where we are comfortable, competent and confident. No tree grows to the sky. When things go too good for too long we need to exercise caution, to avoid that King Kong, on top of the world feeling of dangerous pride. All of us are subject to the natural progression of the “S” curve, which ends in decline. When we level off in any activity, we need to consider the reality that we may have peaked. Nearly every “S” curve has a tipping point. Still, 97% of people only change when the pain of change becomes less than staying where they are. People keeping doing the same old thing expecting a different result. This is insanity. If we want a different result, we need to believe, think, feel, say and do things differently.

Parkinson’s Law – The time we allow to complete a task will fill it. Work expands to fill the time allowed for its completion. If we allow 5 minutes to sew a button on a shirt, it will take 5 minutes to complete the task, to sew on the button. If we allow 15 minutes, it will take 15 minutes to sew on a button. We tend to work at the speed and the intensity of focus to fill the time we have allotted to complete the task. Humans have a natural tendency to waste time, not to use time wisely or redeem it. And yet, that is the only place in life where we are all equal. We all have only 24 hours in a day and the choice in how to use it. Corollary: Want to know what is truly important to someone? Find out how they spend their time, money and who with. This is what is important to them. This is where their priorities in life are. Anything else is hot air.

Occam’s Razor – The simplest and most obvious and uncomplicated solution is often the best. Other things being equal, a simpler explanation is better than a more complex one. Among competing hypotheses, the one that makes the least assumptions should be selected. By way of corollary, if we are humble and listen to what the environment is telling us, whether it be the market, our customers, people with whom we have business and personal relationships, we can then make meaningful adjustments, fine tune if you will, like a ship’s captain is ever making small course corrections to reach his destination from one port to another. It does not matter who is right or wrong; it does not matter who gets the credit or the blame. What is important is getting things right as soon as possible, period, and often the simpler answer is the best one.

Ed Stein cartoon graphic - law of relationships

Rules of Relationships – Whoever loves least is in control, unless proven Rules of Successful Relationships are applied. If there is not character, maturity and a givers’ perspective intrinsic to both parties in the relationship, the relationship will fail long-term or be miserable/exhaustive. A successful relationship requires both commitment and chemistry, and commitment is long-term more important than chemistry. Chemistry only holds a relationship together short-term unless commitment undergirds it. Generally, a man will only stay long-term with a woman (and a woman with a man) if he perceives that she makes his life better than it is on his own or with any other woman. The best relationships have 1st, 2nd, and 3rd Circle relationships integrated and in harmony. In a relationship, how something is said is more important than what is said, and languaging determines with nearly 90% accuracy if a couple will stay together long-term. Nothing trumps picking the right person from end, however, from the get-go.

18. Invest your heart just like you do your money in investments. Do your research front end and prove it out. If you want to receive love, you must first give love, meet the other person’s needs, just like a merchant must first serve his customer before he is paid. Selfishness does not work. Put your heart on the line and let your profits run and cut your losses short. With anyone, we can give them enough rope to either build a bridge or hang themselves, and we can buy the rope front end. Don’t get old with regrets of what you wanted to do, and should have done in life but were too fearful to risk. The elderly nearly unanimously regret not their mistakes, but not taking risks in life to do what they really wanted to do, and to be with whom they really wanted to be with in life. Don’t let fear, the opinions of others and unreasonable social taboos keep you from risking love.

The Rules of Communication – There are basically only two ways to communicate:

1. Confrontational (masculine), like two bighorn sheep butting heads;
2. Complementary (feminine), coming along side, like an aircraft joining a formation of other aircraft.

The latter nearly always works because it activates The Golden Rule of Communication: “You can seldom go wrong asking a question kindly and respectfully.” Why? Because “nearly everyone only cares to hear after they first hear that you care.” Besides, “Friends come and go, but enemies accumulate.” So, we want to keep as many friends as possible and create as few enemies as possible, and the Golden Rule of Communication usually makes this possible. The Golden Rule of Communication works wonderfully with all people everywhere, those above us, below us, with our contemporaries. It is as universal as a smile. The ultimate wealth is found in human connections, and the more positive and powerful that human connective force is in our lives with positive productive people, the more enriched our own lives. Corollary: Never guess when the information is available. It is lazy and unprofessional to guess when the information is available. Ask. Research. Discover intent first before you respond. When in doubt, check it out, always, like when you hear an unfamiliar sound inside of your home.

The greatest bargain available to man is the low cost of good advice. Pay for good advice. Hold people accountable for their representations. Anyone can, and will, say anything. But can they deliver on their representations, can they back up their words with credible action? Do they have a proven track record? Careful planning followed by productive action are the only things that count in the real world. Words are cheap in this sense. Finally, we all have black holes, blind spots, where we do not accurately perceive vulnerabilities in our own lives that others close to us, others who care about us, see readily. Encourage those who care about you to speak freely, critically and constructively into your life for your own good long-term.

Ed Stein cartoon graphic - law of long-term time preference

The Law of Long-Term Time Preference – Those who plan, invest and execute long-term win. Win-win decisions, looking to the long term with short-term work and sacrifice, are historically the tickets to success in all areas of life – short-term sacrifice for long-term benefits, deferred gratification rather than instant gratification. This is the difference between wealth and poverty, between class and trash. Those who make primarily fear-based, ego-based, selfish, win-lose, lose-lose, emotional and/or short-term decisions as their primary mode of operation in life nearly always end up miserable, often as losers in a comprehensive sense in life. Such people are walking tornadoes to be avoided.

The Law of the Four C’s – Most healthy individuals have a natural yearning to want to be the best at nearly everything they do. Why? Why not just be the best you can be at the things that are really important to you in life, like with your family, and at your work, living at the intersection of your aptitude and motivation, at what you are really good at doing, at what you really love? The rest of it, like recreation? Why not simply enjoy down time and allow yourself to do many things Comfortably, Competently and Confidently and then be Content with it? These are the Four Cs. This will put you up around the 80 percentile (Pareto’s Law). And with The Four C’s perspective, you can enjoy life, feel free, do many different activities if you wish, and know that it is good enough to be Comfortable, Competent and Confident in them, and Content about it all. This is a very freeing approach to life. Nobody is always #1.

The Laws of Freedom – There are two types of freedom:

1. Internal freedom;

2. External freedom.

Internal freedom is when we abide in the present moment in a state of continual joy, peace of mind and gratitude that are not contingent upon the circumstances of life, and we have shed the chains of negative thoughts and emotions such as fear, worry, lust, anger, guilt, jealousy, envy, pride, greed, gluttony, etc. (Emotions are always a choice. Why not choose the emotion from your emotional toolbox that best serves others as well as yourself, win-win?) The pinnacle of internal freedom exists when it feels better to give, to help someone else, to bring joy to someone else, than it does to get, to receive. And throw in a good dose of compassion, forgiveness and mercy. External freedom is when we have the ability, resources, energy, time, health and money to do what we love, what we want, where we want, when we want, with whom we want, how we want, consistent with not violating any other person’s person or property, consistent with keeping our covenants and contracts. Eternal freedom is evidenced by living among people who are self-governing with a balance between individuality and community, void of external coercion by civil government.

The Master Equation of All Societies – Government is always religion applied to economics.” This is the E=mc2 of human action. Israel, Islamic nations, China, the former USSR, for examples, have/had official religions/philosophies that give/gave them laws that govern(ed) their societies and “human action” (economics). Every government is the concrete enactment/legislation of someone’s abstract religious/philosophical ideas about right and wrong, good and evil, morality, ethics, justice, these precepts then in turn framing the arena of “human action” (economics). Every day, all over the world, we witness just, fixed, equally applied traffic laws that frame the automobile traffic system which allows individual self-governing human action by drivers behind the wheel of a car to create a harmonious collective, where both the needs of the individual driver and that of the collective driving community are met and are in balance. If we know any one of these three – government, religion, economics – we can nearly always triangulate to the other two. Throughout history, theologians and philosophers have struggled with how to balance out the rights of the individual with those of the community. This is the “One & the Many” question.

The answer which clearly and consistently brings the highest level of human satisfaction in terms of freedom, peace, prosperity, justice, progress, human fulfillment, healthy happy balance between the individual and the community and environmental integrity, given the constant of human nature, is to allow individuals to be free and personally responsible for creating their own destiny in life by contracting and covenanting for what they need without trespassing on or violating the person or property of any other person, without resorting to force, coercion or fraud. If an individual is self-governing using these principles derived from a fixed set of supernatural (religious) laws, he can pursue his balanced self-interest in the marketplace of life by serving before receiving, each individual serving as a catalyst for “human action” (economics). Again, we witness this phenomenon every day globally in the automobile traffic system and also observe it in nature/ creation in the formation of a single dandelion puff where the individual (masculine, linear, +) shafts produce the collective (feminine, non-linear holistic) puff. Government is religion applied to economics.

The Cream & Crap Law – In an honest free market, cream rises to the top. In a politicized market, crap rises to the top.

 Scientific Laws

Proverbs (Old Testament of the Bible)

(REmark: Feel free to share this 25 point article. I wish someone would have shared the above with me when I was 20. What I really appreciate is when a “harmonics of reality” exists, where the same principle is a common thread that runs through any number of fields of study. Then we know we have a hold on a basic powerful principle and truth.)

Reprinted with permission.

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Disclaimer – Opinions expressed on the website do not constitute an offer to buy or sell, or the solicitation of an offer to buy or sell any precious metals product, nor should they be viewed in any way as investment advice or advice to buy, sell or hold. USAGOLD, Inc. recommends the purchase of physical precious metals for asset preservation purposes, not speculation. Utilization of these opinions for speculative purposes is neither suggested nor advised. Commentary is strictly for educational purposes, and as such USAGOLD does not warrant or guarantee the accuracy, timeliness or completeness of the information found here.

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Gold and economic freedom

Row of books on library shelfA Gold Classics Library Selection

Gold and economic freedom

photo of former Fed chairman, Alan Greenspan at conference
by Alan Greenspan

Editor’s note – It may surprise more than a few gold devotees to learn they have an ideological friend in none other than Federal Reserve Board chairman Alan Greenspan. Starting in the 1950s, in fact, Greenspan was a stalwart member of Ayn Rand’s intellectual inner circle. A self-designated “objectivist”, Rand preached a strongly libertarian view, applying it to politics and economics, as well as to religion and popular culture. Under her influence, Greenspan wrote for the first issue of what was to become the widely-circulated Objectivist Newsletter. When Gerald Ford appointed him to the Council of Economic Advisors, Greenspan invited Rand to his swearing-in ceremony. He even attended her funeral in 1982. In 1967, Rand published her non-fiction book, Capitalism, the Unknown Ideal. In it, she included Gold and Economic Freedom, the essay by Alan Greenspan which appears below. Drawing heavily from Murray Rothbard’s much longer The Mystery of Banking, Greenspan argues persuasively in favor of a gold standard and against the concept of a central bank.

Can this be the same Alan Greenspan who today chairs the most important central bank of them all? Again, you might be surprised. R.W. Bradford writes in Liberty magazine that, as Fed chairman, “Greenspan (once) recommended to a Senate committee that all economic regulations should have fixed lifespans. Senator Paul Sarbanes (D-Md.) accused him of ‘playing with fire, or indeed throwing gasoline on the fire,’ and asked him whether he favored a similar provision in the Fed’s authorization. Greenspan coolly answered that he did. Do you actually mean, demanded the senator, that the Fed ‘should cease to function unless affirmatively continued?’ ‘That is correct, sir,’ Greenspan responded.”

Bradford continues, “The Senator could scarcely believe his ears. ‘Now my next question is, is it your intention that the report of this hearing should be that Greenspan recommends a return to the gold standard? Greenspan responded, ‘I’ve been recommending that for years, there’s nothing new about that. It would probably mean there is only one vote in the Federal Open Market Committee for that, but it is mine.'” [2001]

An almost hysterical antagonism toward the gold standard is one issue which unites statists of all persuasions. They seem to sense-perhaps more clearly and subtly than many consistent defenders of laissez-faire — that gold and economic freedom are inseparable, that the gold standard is an instrument of laissez-faire and that each implies and requires the other.

In order to understand the source of their antagonism, it is necessary first to understand the specific role of gold in a free society. Money is the common denominator of all economic transactions. It is that commodity which serves as a medium of exchange, is universally acceptable to all participants in an exchange economy as payment for their goods or services, and can, therefore, be used as a standard of market value and as a store of value, i.e., as a means of saving.

The existence of such a commodity is a precondition of a division of labor economy. If men did not have some commodity of objective value which was generally acceptable as money, they would have to resort to primitive barter or be forced to live on self-sufficient farms and forgo the inestimable advantages of specialization. If men had no means to store value, i.e., to save, neither long-range planning nor exchange would be possible.

What medium of exchange will be acceptable to all participants in an economy is not determined arbitrarily. First, the medium of exchange should be durable. In a primitive society of meager wealth, wheat might be sufficiently durable to serve as a medium, since all exchanges would occur only during and immediately after the harvest, leaving no value-surplus to store. But where store-of-value considerations are important, as they are in richer, more civilized societies, the medium of exchange must be a durable commodity, usually a metal. A metal is generally chosen because it is homogeneous and divisible: every unit is the same as every other and it can be blended or formed in any quantity. Precious jewels, for example, are neither homogeneous nor divisible. More important, the commodity chosen as a medium must be a luxury. Human desires for luxuries are unlimited and, therefore, luxury goods are always in demand and will always be acceptable. Wheat is a luxury in underfed civilizations, but not in a prosperous society. Cigarettes ordinarily would not serve as money, but they did in post-World War II Europe where they were considered a luxury. The term “luxury good” implies scarcity and high unit value. Having a high unit value, such a good is portable; for instance, an ounce of gold is worth a half-ton of pig iron.

In the early stages of a developing money economy, several media of exchange might be used, since a wide variety of commodities would fulfill the foregoing conditions. However, one of the commodities will gradually displace all others, by being more widely acceptable. Preferences on what to hold as a store of value, will shift to the most widely acceptable commodity, which, in turn, will make it still more acceptable. The shift is progressive until that commodity becomes the sole medium of exchange. The use of a single medium is highly advantageous for the same reasons that a money economy is superior to a barter economy: it makes exchanges possible on an incalculably wider scale.

image of Queen Elizabeth touring Bank of England gold roomQueen Elizabeth II views stacks of gold as she visits Bank of England gold room with Prince Philip,
Duke of Edinburgh (December 13, 2012) in London, England

Whether the single medium is gold, silver, seashells, cattle, or tobacco is optional, depending on the context and development of a given economy. In fact, all have been employed, at various times, as media of exchange. Even in the present century, two major commodities, gold and silver, have been used as international media of exchange, with gold becoming the predominant one. Gold, having both artistic and functional uses and being relatively scarce, has significant advantages over all other media of exchange. Since the beginning of World War I, it has been virtually the sole international standard of exchange. If all goods and services were to be paid for in gold, large payments would be difficult to execute and this would tend to limit the extent of a society’s divisions of labor and specialization. Thus a logical extension of the creation of a medium of exchange is the development of a banking system and credit instruments (bank notes and deposits) which act as a substitute for, but are convertible into, gold.

A free banking system based on gold is able to extend credit and thus to create bank notes (currency) and deposits, according to the production requirements of the economy. Individual owners of gold are induced, by payments of interest, to deposit their gold in a bank (against which they can draw checks). But since it is rarely the case that all depositors want to withdraw all their gold at the same time, the banker need keep only a fraction of his total deposits in gold as reserves. This enables the banker to loan out more than the amount of his gold deposits (which means that he holds claims to gold rather than gold as security of his deposits). But the amount of loans which he can afford to make is not arbitrary: he has to gauge it in relation to his reserves and to the status of his investments.

When banks loan money to finance productive and profitable endeavors, the loans are paid off rapidly and bank credit continues to be generally available. But when the business ventures financed by bank credit are less profitable and slow to pay off, bankers soon find that their loans outstanding are excessive relative to their gold reserves, and they begin to curtail new lending, usually by charging higher interest rates. This tends to restrict the financing of new ventures and requires the existing borrowers to improve their profitability before they can obtain credit for further expansion. Thus, under the gold standard, a free banking system stands as the protector of an economy’s stability and balanced growth.

When gold is accepted as the medium of exchange by most or all nations, an unhampered free international gold standard serves to foster a world-wide division of labor and the broadest international trade. Even though the units of exchange (the dollar, the pound, the franc, etc.) differ from country to country, when all are defined in terms of gold the economies of the different countries act as one — so long as there are no restrainta on trade or on the movement of capital.

Credit, interest rates, and prices tend to follow similar patterns in all countries. For example, if banks in one country extend credit too liberally, interest rates in that country will tend to fall, inducing depositors to shift their gold to higher-interest paying banks in other countries. This will immediately cause a shortage of bank reserves in the “easy money” country, inducing tighter credit standards and a return to competitively higher interest rates again.

A fully free banking system and fully consistent gold standard have not as yet been achieved. But prior to World War I, the banking system in the United States (and in most of the world) was based on gold and even though governments intervened occasionally, banking was more free than controlled. Periodically, as a result of overly rapid credit expansion, banks became loaned up to the limit of their gold reserves, interest rates rose sharply, new credit was cut off, and the economy went into a sharp, but short-lived recession. (Compared with the depressions of 1920 and 1932, the pre-World War I business declines were mild indeed.) It was limited gold reserves that stopped the unbalanced expansions of business activity, before they could develop into the post-World War I type of disaster. The readjustment periods were short and the economies quickly reestablished a sound basis to resume expansion.

But the process of cure was misdiagnosed as the disease: if shortage of bank reserves was causing a business decline-argued economic interventionists — why not find a way of supplying increased reserves to the banks so they never need be short! If banks can continue to loan money indefinitely — it was claimed — there need never be any slumps in business. And so the Federal Reserve System was organized in 1913. It consisted of twelve regional Federal Reserve banks nominally owned by private bankers, but in fact government sponsored, controlled, and supported. Credit extended by these banks is in practice (though not legally) backed by the taxing power of the federal government. Technically, we remained on the gold standard; individuals were still free to own gold, and gold continued to be used as bank reserves. But now, in addition to gold, credit extended by the Federal Reserve banks (“paper reserves”) could serve as legal tender to pay depositors.

When business in the United States underwent a mild contraction in 1927, the Federal Reserve created more paper reserves in the hope of forestalling any possible bank reserve shortage. More disastrous, however, was the Federal Reserve’s attempt to assist Great Britain who had been losing gold to us because the Bank of England refused to allow interest rates to rise when market forces dictated (it was politically unpalatable). The reasoning of the authorities involved was as follows: if the Federal Reserve pumped excessive paper reserves into American banks, interest rates in the United States would fall to a level comparable with those in Great Britain; this would act to stop Britain’s gold loss and avoid the political embarrassment of having to raise interest rates.

The “Fed” succeeded; it stopped the gold loss, but it nearly destroyed the economies of the world in the process. The excess credit which the Fed pumped into the economy spilled over into the stock market — triggering a fantastic speculative boom. Belatedly, Federal Reserve officials attempted to sop up the excess reserves and finally succeeded in braking the boom. But it was too late: by 1929 the speculative imbalances had become so overwhelming that the attempt precipitated a sharp retrenching and a consequent demoralizing of business confidence. As a result, the American economy collapsed. Great Britain fared even worse, and rather than absorb the full consequences of her previous folly, she abandoned the gold standard completely in 1931, tearing asunder what remained of the fabric of confidence and inducing a world-wide series of bank failures. The world economies plunged into the Great Depression of the 1930’s.

With a logic reminiscent of a generation earlier, statists argued that the gold standard was largely to blame for the credit debacle which led to the Great Depression. If the gold standard had not existed, they argued, Britain’s abandonment of gold payments in 1931 would not have caused the failure of banks all over the world. (The irony was that since 1913, we had been, not on a gold standard, but on what may be termed “a mixed gold standard”; yet it is gold that took the blame.)

But the opposition to the gold standard in any form — from a growing number of welfare-state advocates — was prompted by a much subtler insight: the realization that the gold standard is incompatible with chronic deficit spending (the hallmark of the welfare state). Stripped of its academic jargon, the welfare state is nothing more than a mechanism by which governments confiscate the wealth of the productive members of a society to support a wide variety of welfare schemes. A substantial part of the confiscation is effected by taxation.

But the welfare statists were quick to recognize that if they wished to retain political power, the amount of taxation had to be limited and they had to resort to programs of massive deficit spending, i.e., they had to borrow money, by issuing government bonds, to finance welfare expenditures on a large scale.

Under a gold standard, the amount of credit that an economy can support is determined by the economy’s tangible assets, since every credit instrument is ultimately a claim on some tangible asset. But government bonds are not backed by tangible wealth, only by the government’s promise to pay out of future tax revenues, and cannot easily be absorbed by the financial markets. A large volume of new government bonds can be sold to the public only at progressively higher interest rates. Thus, government deficit spending under a gold standard is severely limited. The abandonment of the gold standard made it possible for the welfare statists to use the banking system as a means to an unlimited expansion of credit. They have created paper reserves in the form of government bonds which — through a complex series of steps — the banks accept in place of tangible assets and treat as if they were an actual deposit, i.e., as the equivalent of what was formerly a deposit of gold. The holder of a government bond or of a bank deposit created by paper reserves believes that he has a valid claim on a real asset. But the fact is that there are now more claims outstanding than real assets. The law of supply and demand is not to be conned. As the supply of money (of claims) increases relative to the supply of tangible assets in the economy, prices must eventually rise. Thus the earnings saved by the productive members of society lose value in terms of goods.

When the economy’s books are finally balanced, one finds that this loss in value represents the goods purchased by the government for welfare or other purposes with the money proceeds of the government bonds finance by bank credit expansion. In the absence of the gold standard, there is no way to protect savings from confiscation through inflation There is no safe store of value. If there were, the government would have to make its holding illegal, as was done in the case of gold. If everyone decided, for example, to convert all his bank deposits to silver or copper or any other good, and thereafter declined to accept checks as payment for goods, bank deposits would lose their purchasing power and government-created bank credit would be worthless as a claim on goods. The financial policy of the welfare state requires that there be no way for the owners of wealth to protect themselves.

This is the shabby secret of the welfare statists’ tirades against gold. Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights. If one grasps this, one has no difficulty in understanding the statists’ antagonism toward the gold standard.

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Disclaimer – Opinions expressed on the website do not constitute an offer to buy or sell, or the solicitation of an offer to buy or sell any precious metals product, nor should they be viewed in any way as investment advice or advice to buy, sell or hold. USAGOLD, Inc. recommends the purchase of physical precious metals for asset preservation purposes, not speculation. Utilization of these opinions for speculative purposes is neither suggested nor advised. Commentary is strictly for educational purposes, and as such USAGOLD does not warrant or guarantee the accuracy, timeliness or completeness of the information found here.

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Who owns and controls the Federal Reserve

row of books on library shelfA Gold Classics Library Selection

Who owns and controls the Federal Reserve

by Dr. Edward Flaherty

Author’s preface – Is the Federal Reserve System secretly owned and covertly controlled by powerful foreign banking interests? If so, how? These claims, made chiefly by authors Eustace Mullins (1983) and Gary Kah (1991) and repeated by many others, are quite serious because the Fed is the United States central bank and controls U.S. monetary policy. By changing the supply of money in circulation, the Fed influences interest rates, affecting the mortgage payments of millions of families, causing the financial markets to boom or collapse, and prompting the economy to expand or to stumble into recession. Such awesome power presumably would be used to benefit the U.S. economy. Mullins and Kah both argued that the Federal Reserve Bank of New York is owned by foreigners. Although the New York Fed is just one of twelve Federal Reserve banks, controlling it, they claimed, is tantamount to control of the entire System. Foreigners use their command of the New York Fed to manipulate U.S. monetary policy for their own and, as Kah asserted, to further their global political goals, namely the establishment of the sinister New World Order.

This essay examines the accuracy of these claims. Specifically, it investigates the charge that the New York Federal Reserve Bank is owned, directly or indirectly, by foreign elements, whether the New York Fed in effect runs the whole Federal Reserve System, and whether its enormous annual profits accrue primarily to foreigners or to the U.S government. This essay shows that there is little evidence to support the idea of foreign ownership and much that contradicts it. In addition, it presents evidence to show that the New York Fed does not command the entire System, as well as recent data demonstrating that the System’s profits are paid to the federal government.

Who Owns the Federal Reserve Bank of New York?

photo of entrance to New York Federal Reserve

Each of the twelve Federal Reserve Banks is organized into a corporation whose shares are sold to the commercial banks and thrifts operating within the Bank’s district. Shareholders elect six of the nine the board of directors for their regional Federal Reserve Bank as well as its president. Mullins reported that the top eight stockholders of the New York Fed were, in order from largest to smallest as of 1983, Citibank, Chase Manhatten, Morgan Guaranty Trust, Chemical Bank, Manufacturers Hanover Trust, Bankers Trust Company, National Bank of North America, and the Bank of New York (Mullins, p. 179). Together, these banks owned about 63 percent of the New York Fed’s outstanding stock. Mullins then showed that many of these banks are owned by about a dozen European banking organizations, mostly British, and most notably the Rothschild banking dynasty. Through their American agents they are able to select the board of directors for the New York Fed and to direct U.S. monetary policy. Mullins explained,

‘… The most powerful men in the United States were themselves answerable to another power, a foreign power, and a power which had been steadfastly seeking to extend its control over the young republic since its very inception. The power was the financial power of England, centered in the London Branch of the House of Rothschild. The fact was that in 1910, the United States was for all practical purposes being ruled from England, and so it is today’ (Mullins, p. 47-48).

He further commented that the day the Federal Reserve Act was passed, “the Constitution ceased to be the governing covenant of the American people, and our liberties were handed over to a small group of international bankers” (Ibid, p. 29).

Unfortunately, Mullins’ source for the stockholders of the New York Fed could not be verified. He claimed his source was the Federal Reserve Bulletin, although it has never included shareholder information, nor has any other Federal Reserve periodical. It is difficult researching this particular claim because a Federal Reserve Bank is not a publicly traded corporation and is therefore not required by the Securities and Exchange Commission to publish a list of its major shareholders. The question of ownership can still be addressed, however, by examining the legal rules for acquisition of such stock. The Federal Reserve Act requires national banks and participating state banks to purchase shares of their regional Federal Reserve Bank upon joining the System, thereby becoming “member banks” (12 USCA 282). Since the eight banks Mullins named all operate within the New York Federal Reserve district, and are all nationally chartered banks, they are required to be shareholders of the New York Federal Reserve Bank. They are also probably the major shareholders as Mullins claimed.

Are these eight banks on Mullins’ list of stockholders owned by foreigners, what Mullins termed the London Connection? The SEC requires the name of any individual or organization that owns more than 5 percent of the outstanding shares of a publicly traded firm be made public. If foreigners own any shares of Mullins’ eight banks, then their portions are not greater than 5 percent at this time. With no significant holdings of the major New York area banks, it does not seem likely that foreign conspirators could direct their actions.

Perhaps foreigners own shares of the New York Federal Reserve Bank directly. The law stipulates a small portion of Federal Reserve stock may be available for sale to the public. No person or organization, however, may own more than $25,000 of such public stock and none of it carries voting rights (12 USCA 283). However, under the terms of the Federal Reserve Act, public stock was only to be sold in the event the sale of stock to member banks did not raise the minimum of $4 million of initial capital for each Federal Reserve Bank when they were organized in 1913 (12 USCA 281). Each Bank was able to raise the necessary amount through member stock sales, and no public stock was ever sold to the non-bank public. In other words, no Federal Reserve stock has ever been sold to foreigners; it has only been sold to banks which are members of the Federal Reserve System (Woodward, 1996).

Regardless of the foreign ownership conjecture, Mullins argued that since the money-center banks of New York owned the largest portion of stock in the New York Fed, they could hand-pick its board of directors and president. This would give them, and hence the London Connection, control over Fed operations and U.S. monetary policy. This argument is faulty because each commercial bank receives one vote regardless of its size, unlike most corporate voting structures in which the number of votes is tied to the number of shares a person holds (Ibid). The New York Federal Reserve district contains over 1,000 member banks, so it is highly unlikely that even the largest and most powerful banks would be able to coerce so many smaller ones to vote in a particular manner. To control the vote of a majority of member banks would mean acquiring a controlling interest in about 500 member banks of the New York district. Such an expenditure would require an outlay in the hundreds of billions of dollars. Surely there is a cheaper path to global domination.

An historical example may make clear that member banks do not control the Federal Reserve’s policies. Galbraith (1990) recounted that in the spring of 1929 the New York Stock Exchange was booming. Prices there had been rising considerably, extending the bull market that had begun in 1924. The Federal Reserve Board decided to take steps to arrest the speculative bubble that appeared to have been forming: it raised the cost banks had to pay to borrow from the Federal Reserve and it increased speculators’ margin requirements. Charles Mitchell, then the head of National City Bank (today known as Citibank), which was the largest shareholder of the New York Federal Reserve Bank according to Mullins, was so irritated by this decision that in a bank statement he wrote, “We feel that we have an obligation which is paramount to any Federal Reserve warning, or anything else, to avert any dangerous crisis in the money market” (Galbraith, p. 57). National City Bank promised to increase lending to offset any restrictive policies of the Federal Reserve. Wrote Galbraith, “The effect was more than satisfactory: the market took off again. In the three summer months, the increase in prices outran all of the quite impressive increase that had occurred during the entire previous year” (Ibid). If the Fed and its policies were really under the control of its major stockholders, then why did the Federal Reserve Board clearly buck the intent of its single largest shareholder?

This information also eluded fellow conspiracy theorist Gary Kah, who disagreed with Mullins on who owns the New York Fed. His Swiss and Saudi Arabian contacts identified the top eight shareholders as the Rothschild Banks of London and Berlin; Lazard Brothers Banks of Paris; Israel Moses Seif Banks of Italy; Warburg Bank of Hamburg and Amsterdam; Lehman Brothers of New York; Kuhn, Loeb Bank of New York; Chase Manhatten; and Goldman, Sachs of New York (Kah, p. 13). It is impossible to verify Kah’s information because it is not known who his “contacts” were. Nevertheless, Kah’s list differs substantially from Mullins’ compilation. Most interestingly, in Kah’s list foreigners own the New York Fed directly without having to own majority interests in U.S. banks, as is the case with Mullins’ list. The discrepancies in the two lists mean that at least one of them is wrong, and possibly both. Kah’s list is the bogus one because no public stock has ever been issued, so it is not possible for anyone on Kah’s list other than Chase Manhatten to own shares of the New York Fed.

Moreover, Kah seemed ignorant of important details about the organization of Federal Reserve stock and management, especially for someone claiming to have done as much research on the subject as he did. He referred to the organizations on his stockholders list as “Class A shareholders,” which is curious because Federal Reserve stock is not classified in this manner (Ibid). It can be either member stock, which can be purchased only by commercial banks and thrifts seeking to become members of the Federal Reserve System, or public stock. However, the directors of a Federal Reserve bank are separated into Class A, B, and C categories, depending on how they are appointed (12 USCA 302, 304, 305). Three class A directors are chosen by the member banks. Three class B directors are also elected by the member banks to represent the non-bank sectors of the economy. The final three directors, class C, are picked by the Board of Governors also to represent the non-bank public. This may be the source of Kah’s confusion, but it is a relatively simple point that he should have detected had his research efforts been thorough.

wall stone plaque reading 'Federal Reserve Bank of New York'

Does the New York Fed Call the Shots?

Mullins and Kah further argued that by controlling the New York Fed the international banking elite could command the entire Federal Reserve System, and thus direct U.S. monetary policy for their own profit. “For all practical purposes,” Kah stressed, “the Federal Reserve Bank of New York is the Federal Reserve” (Ibid). This is the linchpin of their conspiracy theory because it provides the mechanism by which the international bankers execute their plans.

A brief look at how the Fed’s powers over monetary policy are actually distributed shows that the key assumption in the Mullins-Kah conspiracy theory is erroneous. The Federal Reserve System is controlled not by the New York Fed, but by the Board of Governors (the Board) and the Federal Open Market Committee (FOMC). The Board is a seven member panel appointed by the President and approved by the Senate. It determines the interest rate, known as the discount rate, for loans to commercial banks and thrifts, selects the required reserve ratio which determines how much of customer deposits a bank must keep on hand (a factor that significantly affects a bank’s ability create new loans), and also decides how much new currency Federal Reserve Banks may issue each year (12 USCA 248). The FOMC consists of the members of the Board, the president of the New York Fed, and four presidents from other Fed Banks. The FOMC formulates open market policy, which determines how much in government bonds the Fed Banks may trade, and is the most effective and commonly used of the Fed’s monetary policy tools (12 USCA 263). The key point is that a Federal Reserve Bank cannot change its discount rate or required reserve ratio, issue additional currency, or purchase government bonds without the explicit approval of either the Board or the FOMC.

The New York Federal Reserve Bank through its direct and permanent representation on the FOMC has more say on monetary policy than other Federal Reserve Banks, but it still only has one vote of twelve on the FOMC and no say at all in setting the discount rate or the required reserve ratio. If it wanted monetary policy to go in one direction, while the Board and the rest of the FOMC wanted policy to go another, then the New York Fed would be out-voted. The powers over U.S. monetary policy rest firmly with the publicly-appointed Board of Governors and the Federal Open Market Committee, not with the New York Federal Reserve Bank or a group of international conspirators.

Mullins also made a great to-do about the Federal Advisory Council (the Council). This is a panel of twelve representatives appointed by the board of directors of each Fed Bank. The Council meets at least four times each year with the members of the Board to give them their advice and to discuss general economic conditions (12 USCA 261, 262). Many of the members have been bankers, a point not at all missed by Mullins. He speculated that it is able to force its will on the Board of Governors.

The claim that the “advice” of the council members is not binding on the Governors or that it carries no weight is to claim that four times a year, twelve of the most influential bankers in the United States take time from their work to travel to Washington to meet with the Federal Reserve Board merely to drink coffee and exchange pleasantries (Mullins, p. 45).

A point very much missed by Mullins is that the Council has no voting power in Board meetings, and thus has no direct input into monetary policy. In support of his hypothesis that Council members have been able to impose their will on the Board, Mullins offered no evidence, not even an anecdote. Moreover, his Council theory is inconsistent with his general thesis that the Federal Reserve System is manipulated by European banking interests through their control of the New York Fed. If this were true, then why would they also need the Council?

Who Gets the Fed’s Profits?

Gary Kah and Thomas Schauf have also maintained that the huge profits of the Federal Reserve System are diverted to its foreign owners through the dividends paid to its stockholders. Kah reported “Each year billions of dollars are ‘earned’ by Class A stockholders of the Federal Reserve” (Kah, p. 20). Schauf further lamented by asking, “When are the profits of the Fed going to start flowing into the Treasury so that average Americans are no longer burdened with excessive, unnecessary taxes?”

The Federal Reserve System certainly makes large profits. According to the Board’s 1995 Annual Report, the System had net income totaling $23.9 billion, which, if it were a single firm, would qualify it as one of the most profitable companies in the world. How were these profits distributed? By an agreement between the Board of Governors and the Treasury, nearly all of the Fed’s annual profits are paid to the federal government. Accordingly, a lion’s share of $23.4 billion, which represents 97.9 percent of the Federal Reserve’s net income, was transferred to the Treasury. The Federal Reserve Banks kept $283 million, and the remaining $231 million was paid to its stockholders as dividends.

Given that less than one percent of the Fed’s net earnings are distributed as dividends, it seems that an investor could easily find much more profitable ways to store their wealth than buying Federal Reserve stock. Regarding Schauf’s lamentation, the Federal Reserve System has been paying its profits to the Treasury since 1947.


It does not appear that the New York Federal Reserve Bank is owned, either directly or indirectly, by foreigners. Neither Mullins nor Kah provided verifiable sources for their allegations, nor did their mysterious sources agree on exactly who owns the New York Federal Reserve Bank. Moreover, their central assumption that control of the New York Federal Reserve is the same as control of the whole System is wrong and demonstrates a lack of understanding of the System’s basic organizational structure. The profits of the Federal Reserve System, again contrary to the assertion of Kah and Schauf, are funneled back to the federal government, not to an “international banking elite.” If the U.S. central bank is in the grip of a banking conspiracy, then Mullins and Kah have certainly not uncovered it.


82nd Annual Report, 1995. Board of Governors of the Federal Reserve System. U.S. Government Printing Office.

Galbraith, John K. 1990. A Short History of Financial Euphoria. New York: Whittle Direct Books.

Kah, Gary. 1991. En Route to Global Occupation. Lafayette, La.: Huntington House.

Mullins, Eustace. 1983. Secrets of the Federal Reserve. Staunton, Va.: Bankers Research Institute.

Shauf, Thomas. 1992. The Federal Reserve. Streamwood, IL: FED-UP, Inc.

Woodward, G. Thomas. 1996. “Money and the Federal Reserve System: Myth and Reality.” Congressional Research Service

United States Code Annotated. 1994. U.S. Government Printing Office.

Reprinted with permission.

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Wizard of Oz

row of books on library shelf
A Gold Classics Library Selection

Money and politics in the land of Oz

The extraordinary story behind the extraordinary story of “The Wonderful Wizard of Oz”

Image of book 'The Wonderful Wizrd of Oz' by L. Frank Baum

Editor’s note: Here is the extraordinary story behind the extraordinary story of ‘The Wonderful Wizard of Oz’.  Most have seen the movie version of this allegorical tale, but few are aware of what the various characters, places and things represented in the mind of Frank Baum, the tale’s author. Professor Quentin Taylor of Rogers State University invitingly titles the piece presented below ‘Money and Politics in the Land of Oz’.  Though ‘The Wonderful Wizard of Oz’ was written over 100 years ago, the themes will be recogizable to those with an interest in golden matters. While many today consider gold an instrument of financial and personal freedom, in Baum’s tale, it is painted as a villain — the tool of oppression. So, as you are about to see, we have come full circle, and gold has traveled a yellow brick road of its own. Happy reading.

by Quentin P. Taylor, Professor of History, Rogers State University

Abstract: L. Frank Baum claimed to have written The Wonderful Wizard of Oz “solely to pleasure the children” of his day, but scholars have found enough parallels between Dorothy’s yellow-brick odyssey and the politics of 1890s Populism to suggest otherwise. Did Baum intend to pen a subtle political satire on monetary reform or merely an entertaining fantasy?

“The story of ‘The Wonderful Wizard of Oz’ was written solely to pleasure children of today” (Dighe 2002, 42). So wrote L. Frank Baum in the introduction to his popular children’s story published in 1900. As fertile as his imagination was, Baum could hardly have conceived that his “modernized fairly tale” would attain immortality when it was adapted to the silver screen forty years later. Though not a smash hit at the time of its release, The Wizard of Oz soon captured the hearts of the movie-going public, and it has retained its grip ever since. With its stirring effects, colorful characters, and memorable music (not to mention Judy Garland’s dazzling performance), the film has delighted young and old alike for three generations. Yet, as everyone knows, The Wizard of Oz is more than just another celluloid classic; it has become a permanent part of American popular culture.

Oz as Allegory

Is Oz, however, merely a children’s story, as its author claimed? For a quarter of a century after its film debut, no one seemed to think otherwise. This view would change completely when an obscure high school teacher published an essay in American Quarterly claiming that Baum’s charming tale concealed a clever allegory on the Populist movement, the agrarian revolt that swept across the Midwest in the 1890s. In an ingenuous act of imaginative scholarship, Henry M. Littlefield linked the characters and the story line of the Oz tale to the political landscape of the Mauve Decade. The discovery was little less than astonishing: Baum’s children’s story was in fact a full-blown “parable on populism,” a “vibrant and ironic portrait” of America on the eve of the new century (Littlefield 1964, 50).

In supporting this thesis, Littlefield drew on Baum’s experience as a journalist before he wrote Oz. As editor of a small newspaper in Aberdeen, South Dakota, Baum had written on politics and current events in the late 1880s and early 1890s, a period that coincided with the formation of the Populist Party. Littlefield also indicated that Baum was sympathetic to the Populist movement, supported William Jennings Bryan in the election of 1896, and, though not an activist, consistently voted for Democratic candidates. (In 1896, the Populists joined the Democrats in backing Bryan’s bid for the presidency.) Finally, Littlefield noted Baum’s penchant for political satire as evidenced by his second Oz tale, which lampoons feminism and the suffragette movement.

In coupling Baum’s political and literary proclivities, Littlefield built on the work of Martin Gardner and Russel B. Nye, who were among the first to take a serious interest in “The Royal Historian of Oz.” According to Nye, Baum all but admitted that his writings contained a veiled subtext, confessing his desire to pen stories that would “bear the stamp of our times and depict the progressive fairies of the day” (Gardiner and Nye 1957, 1). For Littlefield, Baum’s revelation appeared decisive. Yet even without it, the numerous parallels and analogies between the Oz story and contemporary politics were “far too consistent to be coincidental” (1964, 58). And although the parable remains in a “minor key” and is not allowed to interfere with the fantasy, “the author’s allegorical intent seems clear”-that is, to produce “a gentle and friendly Midwestern critique of the Populist rationale” (50, 58, 57).

The reaction to Littlefield was, predictably, mixed. Scholars and teachers, who saw the allegorical reading (as Littlefield himself had) as a useful “teaching mechanism,” tended to be enthusiastic. Many among the Oz faithful, however, were not impressed, including Baum’s great-grandson, who curtly dismissed the parable thesis as “insane” (Moyer 1998, 46). Although neither side produced much evidence, Littlefield’s interpretation gained widespread currency in academic circles, and by the 1980s it had assumed the proportions of an “urban legend,” as history textbooks and scholarly works on Populism paid homage to the Oz allegory.

The contention that Oz is a cleverly crafted political parable reached its apogee in the erudite pages of the Journal of Political Economy. In an article entitled “The ‘Wizard of Oz’ as a Monetary Allegory” (1990), Hugh Rockoff examined the analogies between Baum’s use of imagery and the monetary politics of the Populist era. In the book version of Oz, Dorothy treads the Yellow Brick Road in silver shoes, not in ruby slippers. Silver shoes on a golden road? A key plank in the Populist platform was a demand for “free silver” — that is, the “free and unlimited coinage of silver and gold” at a fixed ratio of sixteen to one.

image of page from Puck magazine showing Willilam Jennings Bryan tipping scales as 'ablest worker for sound money'

Populists and other free-silver proponents advocated unlimited coinage of the white metal in order to inflate the money supply, thus making it easer for cash-strapped farmers and small businessmen to borrow money and pay off debts. At the Democratic National Convention in 1896, the assembled delegates nominated William Jennings Bryan, an avid supporter of free silver, for president. The Bryan nomination created a split in the Democratic Party, as gold-standard delegates bolted the convention. When the Populists convened two weeks later, they decided to endorse Bryan, putting all their reformist eggs in the free-silver basket. When Bryan was roundly defeated by the “sound money” Republican William McKinley, the Populist Party, which had considerable strength in the Midwest and South, fell into rapid decline. By 1900, when Bryan was again defeated by McKinley, Populism already had one foot in the political grave.

According to Rockoff, the monetary politics of the 1896 campaign, which divided the electorate into “silverites” and “goldbugs,” supplied the central backdrop for Baum’s allegorical adaptation. Incorporating the analogies developed by Littlefield and others, and adding a few of his own, Rockoff provided a detailed and sustained analysis of the political and economic issues symbolically refracted in The Wonderful Wizard of Oz.

With Rockoff, the allegorical interpretation reached a peak of sophistication, yet its subsequent decline was no less precipitous than that of the Populist Party itself. In 1991, Michael Hearn, a leading Baum scholar, published a letter in the New York Times that demolished Gardner and Nye’s claim (based on interviews with Baum’s son and biographer) that Baum was a Democrat and a Bryan supporter. Indeed, the record shows that Baum was neither. His editorials for the Aberdeen Saturday Pioneer expressed support for Republican candidates and criticized the nascent Populist movement. Later, during the 1896 campaign, Baum published a poem championing McKinley and his economic policies: “Our merchants won’t be trembling / At the silverites‘ dissembling / When McKinley gets the chair!” Further evidence, from Baum’s later books and activities, indicates that he was, if not a regular Republican, then certainly no Democrat or Populist.

On the basis of these revelations, Hearn found “no evidence that Baum’s story is in any way a Populist allegory,” and he concluded that the Littlefield reading “has no basis in fact” (1992). In response, Littlefield conceded that “there is no basis in fact to consider Baum a supporter of turn-of-the-century Populist ideology,” adding that whatever Baum’s intentions were in writing Oz, he kept them to himself (1992). The Oz purists could only rejoice.

The postmortem on the symbolic reading of Baum soon followed. In “The Rise and Fall of The Wonderful Wizard of Oz as a ‘Parable on Populism,'” David Parker recounted the curious interpretive history of the first Oz book. Although bowing to the evidence, Parker attempted to salvage the allegorical interpretation as “a useful pedagogical device . . . [for] illustrating a number of Gilded Age issues” (1994, 58), but he suggested that other interpretations might be “just as compelling” (59). Given its rich imagery and suggestive plot, Baum’s story, Parker concluded, can be “anything we want it to be-including, if we wish, a parable on Populism” (59).

This judgment would seem to be the final word on what is certainly one of the most fascinating literary puzzles of the twentieth century. On the surface, this verdict is confirmed by Ranjit S. Dighe in a recent edition of Baum’s immortal tale. In The Historian’s Wizard of Oz: Reading L. Frank Baum’s Classic as a Political and Monetary Allegory, Dighe concludes that the story “is almost certainly not a conscious Populist allegory,” but, like Parker, he believes “the book works” as one (2002, 8).

Really the Last Word?

This “solution” to the riddle may have been intended to pull the curtain on a wellworn debate, but it only begs the question: If Oz “works” so well as an allegory, why discount the likelihood that it was meant as an allegory? Ironically, Dighe provides ample circumstantial evidence that it was. First, Baum was, if not politically active, then undoubtedly well informed. As a journalist and editor, he was familiar with the political events and controversies of the day, and he commented liberally on a number of them. Second, all agree that Baum injected political satire into some of his later works, including the 1902 stage production of Oz, which parodied the Populists, among others. A final and perhaps more telling sign is found in Baum’s enigmatic personality. Friends and family members have attested to his penchant for jesting and playful dissimulation. “Everything he said had to be taken with at least a half-pound of salt,” recalled one acquaintance (qtd. in Dighe 2002, 8). Similarly, a nephew noted Baum’s habit of “tell[ing] wild tales, with a perfectly straight face, and earnestly, as though he really believed them himself” (qtd. in Dighe 2002, 8). There is also an anecdote that Baum spoke on behalf of a Republican candidate on one day, then gave the same speech in favor of a Democrat on another day (Hearn 1992).


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Taken together, these facts suggest that if anyone was likely to create a political satire out of an innocent children’s story, it was L. Frank Baum (Koupal 2001). But Baum was a sophisticated satirist, who most likely understood that the most effective satire is guileless and keeps the reader guessing as to the author’s true intent (Koupal 1989). This sophistication explains the disclaimer in the introduction to Oz: the claim that the book was “written solely to pleasure children of today.” Dighe suggests that this “odd disclaimer” may have been a “hint” that Baum intended to conceal a message in the text (2002, 42). Indeed, to do so was fully consistent with Baum’s personality and later writings. Why else claim that a children’s book’s was “written solely” for children unless the author wished to imply just the opposite? In light of the obvious parallels and correspondences in Oz, the disclaimer stands revealed for what it truly is: the preliminary staging of an elaborate jest. That most readers did not “get it” only added to its success, for Baum, a connoisseur of the preposterous, nourished the pleasures of the private joke (see William Leach’s introduction to Baum [1900] 1991).

With these considerations in mind, the alleged “triumph” of the revisionist view is not merely a qualified and tentative victory, but no victory at all. First, Littlefield and his supporters never claimed to have proved that Baum wrote a deliberate, conscious parable. True, Littlefield did propose to “demonstrate” the presence of “a symbolic allegory” in Oz, but he conceded that his specific findings were “theoretical” (50, 58). Second, he can hardly be blamed for the erroneous details regarding Baum’s political proclivities. More important, Baum’s politics, which were highly eclectic, have little bearing on the question of whether or not Oz contains a symbolic allegory. Littlefield’s critics often present Baum’s quasi-Republican and anti-Populist credentials as “proof” that he could not have intended to write a Populist parable. The assumption rests on the claim that he interpreted Oz in a pro-Populist vein, yet Littlefield read Baum’s allegory as a “critique of the Populist rationale,” not as a defense. Finally, Littlefield recognized that the principal value of the allegorical interpretation was pedagogical; the author’s intent was only a secondary consideration.

The revisionists clearly have overstated their case, and observers such as Parker and Dighe have conceded too much. Even Michael Gessel, the skeptical editor of the Baum newsletter, admits that “The Wizard can be viewed as a political tale” (1992). Gessel’s admission underscores the difficulty of simply dismissing the allegorical interpretation or ascribing it to Baum’s “subconscious.” Despite Dighe’s own skepticism, his recent edition, which lists virtually every alleged political-cum-monetary analogy in Oz, only adds further weight to the contention that Littlefield was essentially right. Although some of the parallels are more tenuous than others, many are so obvious and palpable as to defy coincidence. Their cumulative effect-not only in number, but in coherence-warrants a strong presumption that Baum’s fairy tale contains a conscious political subtext. In conjunction with what is known about Baum and his oeuvre, it is reasonable to conclude that The Wonderful Wizard of Oz was in large part intended along the lines Littlefield laid down forty years ago. The “riddle” of Oz is not such a riddle after all; it is “solved” in much the manner one identifies a duck, on the basis of its attributes.

The question of Baum’s intention in writing Oz, though of interest to the literary sleuth, is clearly secondary to the allegory itself. Now that the numerous elements of Baum’s parable have been gathered and set down, it may appear that little remains to be said. Perhaps nothing original or groundbreaking remains undiscovered, yet because Dighe presents these elements as annotations to Baum’s text, we still lack an integrated, expository account that incorporates all the relevant metaphors and analogies. Acknowledging in advance my debt to Littlefield, Rockoff, and Dighe, I attempt to give such an account here. For purposes of coherence and clarity, I take the allegorical reading for granted and generally avoid qualifying language. A number of analogies are admittedly subject to more than one interpretation, and I make no claim that Baum himself intended each one. Rather, I have adopted (and occasionally embellished) those that fit the Populist parable best.

composite photo of Judy Garland, tornado, Baum and Bryan

Dorothy (and Toto) of Kansas

Dorothy, the protagonist of the story, represents an individualized ideal of the American people. She is each of us at our best-kind but self-respecting, guileless but levelheaded, wholesome but plucky. She is akin to Everyman, or, in modern parlance, “the girl next door.” Dorothy lives in Kansas, where virtually everything-the treeless prairie, the sun-beaten grass, the paint-stripped house — even Aunt Em and Uncle Henry — is a dull, drab, lifeless gray. This grim depiction reflects the forlorn condition of Kansas in the late 1880s and early 1890s, when a combination of scorching droughts, severe winters, and an invasion of grasshoppers reduced the prairie to an uninhabitable wasteland. The result for farmers and all who depended on agriculture for their livelihood was devastating. Many ascribed their misfortune to the natural elements, called it quits, and moved on. Others blamed the hard times on bankers, the railroads, and various middlemen who seemed to profit at the farmers’ expense. Angry victims of the Kansas calamity also took aim at the politicians, who often appeared indifferent to their plight. Around these economic and political grievances, the Populist movement coalesced.

In the late 1880s and early 1890s, Populism spread rapidly throughout the Midwest and into the South, but Kansas was always the site of its most popular and radical elements. In 1890, Populist candidates began winning seats in state legislatures and Congress, and two years later Populists in Kansas gained control of the lower house of the state assembly, elected a Populist governor, and sent a Populist to the U.S. Senate. The twister that carries Dorothy to Oz symbolizes the Populist cyclone that swept across Kansas in the early 1890s. Baum was not the first to use the metaphor. Mary E. Lease, a fire-breathing Populist orator, was often referred to as the “Kansas Cyclone,” and the free-silver movement was often likened to a political whirlwind that had taken the nation by storm. Although Dorothy does not stand for Lease, Baum did give her (in the stage version) the last name “Gale”-a further pun on the cyclone metaphor.

The name of Dorothy’s canine companion, Toto, is also a pun, a play on teetotaler. Prohibitionists were among the Populists’ most faithful allies, and the Populist hope William Jennings Bryan was himself a “dry.” As Dorothy embarks on the Yellow Brick Road, Toto trots “soberly” behind her, just as the Prohibitionists soberly followed the Populists.

The Baum Witch Project

When Dorothy’s twister-tossed house comes to rest in Oz, it lands squarely on the wicked Witch of the East, killing her instantly. The startled girl emerges from the abode to find herself in a strange land of remarkable beauty, whose inhabitants, the diminutive Munchkins, rejoice at the death of the Witch. The Witch represents eastern financial-industrial interests and their gold-standard political allies, the main targets of Populist venom. Midwestern farmers often blamed their woes on the nefarious practices of Wall Street bankers and the captains of industry, whom they believed were engaged in a conspiracy to “enslave” the “little people,” just as the Witch of the East had enslaved the Munchkins. Populists viewed establishment politicians, including presidents, as helpless pawns or willing accomplices. Had not President Cleveland bowed to eastern bankers by repealing the Silver Purchase Act in 1893, thus further restricting much-needed credit? Had not McKinley (prompted by the wealthy industrialist Mark Hanna) made the gold standard the centerpiece of his campaign against Bryan and free silver?

It is apt, then, that Dorothy acquires the Witch of the East’s silver shoes at the behest of the good Witch of the North, who stands for the electorate of the upper Midwest, where Populism gained considerable support. (Later in the story, good witches are identified with the color white; silver is known as “the white metal.”) Still, for all her goodness, the Witch of the North, like the voters of the upper Midwest, is no match for the malign forces of the East, her tender “kiss” on Dorothy’s forehead (electoral support) notwithstanding. The death of the wicked Witch, however, is cause for rejoicing-the “little people” (owing to the destruction of eastern power) are now free. All along, the Munchkins were vaguely aware that their bondage was somehow linked to the silver shoes, but the shoes’ precise power was never known. Similarly, although Wall Street and the eastern establishment understood silver’s power, common farmers knew little of monetary matters, and bimetalism failed to resonate with eastern workers, who voted against Bryan in droves.

After Dorothy and her companions reach Emerald City, the Wizard sends them to kill the wicked Witch of the West. This Witch is also a cruel enslaver, and she appears to represent a composite of the malign forces of nature that plagued farmers in the Midwest and the power brokers of that region. The former menace is mirrored in the Witch’s dominion, which recalls the parched plains of western Kansas, and by the ferocious wolves, ravenous crows, and venomous bees that she sends to destroy Dorothy and her friends. Each predator is summoned by blowing on a silver whistle, another example of a malicious use of the white metal. When the Witch’s minions are themselves destroyed, she calls on the Winged Monkeys through the magic of a golden cap. The cap had already been used twice, once to enslave the Winkies and again to drive the Wizard out of the West, patent injustices committed through the power of gold. Yet in summoning the Monkeys, the Witch exhausts the cap’s charm, and the flying simians (who had been forced to assist in her evil deeds) are liberated. The power of gold proves finite and illusory, and it requires the coexistence of silver (bimetalism) to sustain its power. No wonder the wicked Witch is so keen to possess Dorothy’s silver shoes.

The malign manipulation of gold and silver by the wicked Witch represents the other half of the western menace: the self-interested juggling of metal currency by the western nabobs. McKinley of Ohio, for example, supported the Sherman Silver Purchase Act of 1890, voted for its repeal in 1893, and made the gold standard the cornerstone of his 1896 presidential bid. Mark Hanna, also of Ohio, served as McKinley’s campaign manager and close advisor, and he was widely viewed as the Richelieu behind the throne. (Vilified by the Populists, Hanna had William Allen White’s scathing attack on the Populists-“What’s the Matter with Kansas?”-circulated throughout the country during the campaign.) Not surprisingly, the Wizard requires the death of the wicked Witch of the West before he will grant Dorothy’s “party” its wishes. The Witch’s demise by water ends her evil reign, liberates her slaves, and restores the silver shoe she had stolen from Dorothy. In one fell swoop, the parched lands are watered, the farmers are freed, and silver is returned to its rightful owner, the people.

The fourth witch, Glinda of the South, is a good witch who, unlike her northern counterpart, understands the power of Dorothy’s silver shoes. In 1896, Bryan’s Democratic-Populist ticket carried the South, and some of the strongest silverites in Congress were from the South, whereas northern support for Bryan and free silver was more moderate. In Oz, the denizens of the South, the Quadlings, are described as an odd race who never travel to Emerald City and dislike strangers traveling across their land. Not since the 1860s had a southerner served as president, and immigrants and northerners were generally unwelcome in the South. Moreover, the road to the land of the Quadlings is perilous and rife with dangers. For those who were “different” (including resident blacks), the South could be a dangerous place indeed.

The Three Amigos

Composite photo of scarecrow, tinman and lion

In the hope that the Wizard will help her return to Kansas, Dorothy embarks on the Yellow Brick Road to Emerald City. After traveling several miles, she encounters the Scarecrow, who does not “know anything” because he has “no brains at all.” The brainless Scarecrow represents the midwestern farmers, whose years of hardship and subjection to ridicule had created a sense of inferiority and self-doubt. Populist leaders such as William Peffer and “Sockless” Jerry Simpson were often portrayed as deluded simpletons who failed to understand the true causes of their economic plight. The Populists’ “stupidity” was also attested to by their apocalyptic rhetoric, conspiracy theories, and radical agenda, which included nationalization of the railroads, a graduated income tax, and the unlimited coinage of silver. Critics scoffed at their overblown rants, mocked their paranoid style, and dismissed their simplistic nostrums as the distempered ravings of “socialist hayseeds.”

The picture of the Scarecrow is not so one-sided. His conduct on the journey through Oz is marked by common sense, resilience, and rectitude. He is not so dumb after all. As we learn near the end of the story, the Scarecrow-cum-farmer had brains all along-perhaps brains enough to grasp the true causes of his misery and the basics of monetary policy.

On the trek through the forest, where the road is in disrepair, the Scarecrow stumbles and falls on the “hard [yellow] bricks,” a reference to the Populist claim that the gold standard had a damaging impact on farmers and the people at large. Still, the Scarecrow is “never hurt” by his falls, which suggests that the yellow metal was not the real culprit of the farmer’s woes.

Proceeding down the road, the duo encounter the Tin Woodman. Once healthy and productive, the Woodman was cursed by the wicked Witch of the East, lost his dexterity, and accidentally hacked off his limbs. Each lost appendage was replaced with tin until the Woodman was made entirely of metal. In essence, the Witch of the East (big business) reduced the Woodman to a machine, a dehumanized worker who no longer feels, who has no heart. As such, the Tin Man represents the nation’s workers, in particular the industrial workers with whom the Populists hoped to make common cause. His rusted condition parallels the prostrated condition of labor during the depression of 1890s; like many workers of that period, the Tin Man is unemployed. Yet, with a few drops of oil, he is able to resume his customary labors-a remedy akin to the “pump-priming” measures that Populists advocated.

Having liberated the Tin Man, the trio proceeds through the forest, only to be accosted by a roaring lion. He is none other than William Jennings Bryan, the Nebraska representative in Congress and later the Democratic presidential candidate in 1896 and 1900. Bryan (which rhymes with “lion,” a near homonym of “lying”) was known for his “roaring” rhetoric and was occasionally portrayed in the press as a lion, as was the Populist Party itself. Bryan adopted the free-silver mantra and won the Populists’ support in his first race against McKinley. Like the Lion of Oz, Bryan was the last to “join” the party. His defeat in the general election was largely owing to his failure to win the support of eastern workers, just as the Lion’s claws “could make no impression” on the Tin Man.

Although Bryan’s supporters considered him courageous, his critics thought him “cowardly” for opposing war with Spain in 1898 and the subsequent annexation of the Philippines. Yet, for anti-imperialists, who counted many Populists among their ranks, Bryan’s unpopular stand was courageous indeed. Less courageous, however, were his final decision to vote for annexation (albeit as a tactical move) and his failure to fight vigorously for free silver in the election of 1900, both of which disappointed Populists.

Still, the Lion, without knowing that he possesses courage, really does. Near the end of the story, he slays a spiderlike monster that is terrorizing the animals of the forest. The predatory beast symbolizes the great trusts and corporations that were thought to dominate economic life at the turn of the century. Cast as the chief villains in the Populist drama, the trusts were often portrayed as “monsters” of one kind or another. “Sockless” Jerry Simpson called the railroads a “giant spider that controlled our commerce and transportation” (qtd. in Clanton 1991, 51), and the author of Coin’s Financial School, the leading free-silver tract of the 1890s, represented the Rothschild money trust as an octopus. Baum himself used the monopoly-as-octopus metaphor in a number of later works, including a specific reference to the Standard Oil Company. Breaking up the trusts and nationalizing the railroads were key components of the Populist agenda, and Bryan favored trust busting if not outright nationalization. Accordingly, the Lion attacks and kills the great beast by knocking off its head. Freed from the eight-legged monster, the grateful forest dwellers vow fealty to the conquering Lion. Would not the Populists have done likewise if Bryan had defeated McKinley and, presumably, slain the trusts?

Of Mice and Monkeys

Another scrape with a menacing beast recapitulates the metaphor. When a “great yellow Wildcat” lights upon the Queen of the Field Mice, the Tin Man decapitates the feral feline with a single swing of his ax. For delivering the Queen from her “enemy,” the mice pledge obedience to the Tin Man. Their first act of service is to rescue the Lion from the “deadly poppy fields,” where the powerful scent of the flowers has felled the king of beasts.

The diminutive rodents represent the common people, and the “yellow” cat is yet another reference to the malign power of gold. By killing the Wildcat, the Tin Man symbolically slays a chief “enemy” of the people. The timely support of the mice parallels the importance of the common folk in Bryan’s bid for the presidency.

The Winged Monkeys, the unwilling minions of the Witch of the West, add a further dimension to the Oz allegory. These creatures represent the Plains Indians. As the Monkeys’ leader relates, “we were a free people, living happily in the great forest flying from tree to tree, eating nuts and fruit, and doing just as we pleased without calling anybody master.” The Monkey King admits to having engaged in a degree of “mischief,” but nothing to justify the harsh treatment the Monkeys received when “Oz came out of the clouds to rule over this land.” The Monkeys were initially sequestered, a reference to the government’s reservation policy. Later, they are forced to do the bidding of the Western Witch, who commands them with the golden cap. Yet the Monkeys are not inherently bad; they have become so only through an unnatural and evil force. This scenario parallels the view of reformers who blamed the Indians’ condition on the whites’ inhumane practices. Under Dorothy’s benevolent influence, the Monkeys are kind and helpful-that is to say, “assimulated.”

Chinatown and the Yellow Winkies

On the journey to find Glinda, the good Witch of the South, Dorothy and company pass through Dainty China Country, which they enter by climbing over a high white wall. China and its Great Wall are the obvious references. But what does China have to do with Gilded Age politics? First, China was in the process of being divided by the great powers (including the United States) into “spheres of influence” for the purpose of commercial exploitation. In 1899 and 1900, Secretary of State John Hay issued the famous “Open Door” notes in an effort to prevent rival nations from gaining “unfair” economic advantages in China. Second, the Celestial Kingdom was the only major nation still on the silver standard. It is apt, then, that Dainty China Country’s wall and floor are white, the color of silver bullion. Third, the Lion’s careless destruction of the china church echoes the territorial “breakup” of China by foreign intruders and the active proselytizing by Christian missionaries. Finally, the china Princess, who rejects Dorothy’s invitation to visit Kansas, resembles the dowager empress, who strongly opposed the foreign presence in China. The last two parallels recall the anti-imperialism that Bryan and others championed.

Another anti-imperialist theme appears in the form of the Winkies, called “yellow” because they reside in the Land of the West. The Winkies, who are forced to work for the Witch of the West, represent the “yellow man” of Asia, especially the Chinese immigrants and the native Filipinos. For decades, the Chinese had immigrated to the Far West to labor in various capacities. Given their “exotic” appearance, clannish habits, and willingness to work for low wages, they were often the targets of abuse, discrimination, and even murder. Under pressure from the authorities in California, Congress passed the Exclusion Act (1882), which banned Chinese immigration for twenty years.

The Winkies also resemble the Filipinos, who, after their country’s annexation by the United States, found themselves (once more) subjected to a Western power. Demands for independence were denied on the grounds that the Filipino people were “unfit” for self-government. The assumption that the United States knew what was best for the natives was satirized in Baum’s original script of the stage version of Oz, where the Scarecrow remarks, “It isn’t the people who live in a country who know the most about it. . . . Look at the Filipinos. Everybody knows more about their country than they do” (qtd. in Dighe 2002, 93).

artist rendering the Wonderful Wizard of Oz and Dorothy, scarcrow, tinman and lion

Oz, Emerald City, and the Wacky Wizard

The Land of Oz, with its varied landscape and diverse inhabitants, is a microcosm of America, and Emerald City, its center and seat of government, represents Washington, D.C. In an effort to be made whole, Dorothy and her band travel to the capital to see the Wizard, who presumably has the power to grant them their wishes. The journey to Emerald City corresponds to the Populist effort to acquire power in Washington, and the travelers recall the “industrial armies” who marched on the capital during the depression of 1893-97. The most famous of these, “Coxey’s Army,” was led by a successful businessman who urged the government to fund public-works programs (most notably a “good roads bill”) to alleviate unemployment. Coxey, who hoped to meet with President Cleveland, was arrested for trespassing, and his proposals were ignored. Dorothy and company also face hazards on the road to Emerald City and are turned away by the Wizard, who shows little sympathy for their plight.

The Wizard, who “can take on any form he wishes,” represents the protean politicians of the era, especially the presidents of the Gilded Age. Given the even division of Democrats and Republicans, and the razor-thin majorities of most presidential elections, candidates rarely took clear stands on the issues. As a result, voters often had difficulty in determining what the candidates stood for. The Wizard fits this description, for “who the real Oz is,” Dorothy is informed, “no living person can tell.” Indeed, when the foursome enter the throne room, the Wizard appears to each in a different form. Like many politicians, he is unwillingly to help them without a quid pro quo: “I never grant favors without some return.”

Politicians are also infamous for failing to keep promises, and the great Oz is no different. When Dorothy’s party returns after killing the Witch of the West, the Wizard keeps them waiting, then puts them off. By accident, the all-powerful Wizard is exposed and his true identify revealed. Far from a mighty magician, “Oz, the Terrible” is merely a “humbug,” a wizened old man whose “power” is achieved through elaborate acts of deception. The Wizard is simply a manipulative politician who appears to the people in one form, but works behind the scenes to achieve his true ends. Such figures are terrified at being exposed; the Wizard cautions Dorothy to lower her voice lest he be discovered and “ruined.”

As it turns out, the Wizard hails from Omaha, where he became a talented ventriloquist and later a circus balloonist. Bryan was from Nebraska, was famous for his “hot-air” oratory, and in the minds of his critics was something like a circus ringmaster. Nebraska was also a bastion of Populism, and Omaha the site of the 1892 Populist National Convention, where the party adopted the “Omaha platform,” the movement’s leading manifesto. Following the party’s convention of the previous year, Judge, a popular magazine, parodied the Populists on its cover, which depicted a hotair balloon made of patches that bear the names of the groups and parties that had rallied to the Populist standard: Knights of Labor, Prohibition Party, Socialists, Farmers Alliance, and so forth. In the balloon’s basket are caricatures of Populist leaders, preaching the “Platform of Lunacy.”

Identification of the Wizard with Bryan would seem to raise an obvious problem. Is he represented by the Lion and the Wizard? Bryan was never president, but he was a masterful politician and an aspirant to the White House. In conjunction with references to Omaha, ventriloquism, and the balloon, the link between Bryan and the Wizard is a reasonable inference. Just as some of Baum’s metaphors serve as a composite, the Lion and the Wizard represent different aspects of Bryan.

The Colors of Money

The Land of Oz is colorful, to say the least, and The Wonderful Wizard of Oz is replete with references to gold, silver, and green. A number of these references have been noted already, but the story makes several others. The references to gold and silver echo the prominence of monetary politics in the 1890s, especially the bimetallic crusade led by Bryan and the Populists. Moreover, gold and silver are often portrayed as working in combination. The Witch of the West conjures her minions with a silver whistle and a golden cap, and the Tin Man receives a new ax made of gold and silver, as well as a new oil can that contains both metals. Of course, there is Dorothy on her sojourn through Oz, “her silver shoes tinkling merrily on the hard, yellow, roadbed.” The word oz itself is the abbreviation for an ounce of gold or silver. There are additional references to gold and silver, but the ones given here amply illustrate Baum’s use of the monetary metaphor.

Green, often in combination with gold, is also a recurrent image. Then as now, green was the color of paper money. The Greenback Party, a precursor of the Populists, advocated the expansion of the money supply via the increased circulation of “greenbacks.” Jacob Coxey was a greenbacker, as was James B. Weaver, the Populist presidential nominee in 1892. Most of the green imagery in Oz is general in nature and does not appear to indicate specific parallels. Toto wears a green collar that fades to white (silver), and later he receives a gold collar, as does the Lion. In Emerald City, everyone is required to wear green glasses with golden bands, so that nearly everything appears in a resplendent green. The Lion’s liquid “courage” is poured from a green bottle into a gold-green dish, and the Wizard’s balloon is patched with green silk of various shades. As the spectacles create an illusion, the liquid courage is only a placebo, and the balloon is a mere patchwork, so the demand for paper money is exposed as a panacea for the farmers’ woes.

At the end of the story, the Scarecrow supplants the Wizard as the ruler of Emerald City, the Tin Woodman is made master of the West, and the Lion is placed over the animals of the forest. Dorothy transports herself back to Kansas by clicking her silver shoes together three times. All this is achieved with the help of Glinda, the good Witch of the South. The message? Populism is triumphant, the goal of gaining political power is achieved. Or is it? Neither the Scarecrow nor the Tin Man nor the Lion truly lacked what each believed he was missing; the great Wizard’s powers proved illusory; and Dorothy had the power to transform her condition all along. These features of the story point to a more ambivalent result. Indeed, Populism’s outright failure is suggested when Dorothy’s silver shoes fall off in the desert and are “lost forever.” After Bryan’s defeat in 1896, the free-silver movement went into rapid decline. McKinley’s reelection and the statutory adoption of the gold standard in 1900 spelled political oblivion for the Populists.


Critics of the allegorical reading of The Wonderful Wizard of Oz have made much of the discovery that L. Frank Baum was not a Democrat or a Bryan supporter. In itself, however, this discovery proves nothing. At most, it suggests that Oz is not a pro-Populist parable, something quite different from the claim that there is “no evidence that Baum’s story is in any way a Populist allegory,” as Hearn (1992) argued. The originator of the allegorical interpretation characterized Oz as a “critique” of Populism, not a defense. The assertion that there is “no evidence” of an allegorical subtext is simply myopic in the extreme. As the foregoing reconstruction shows, the evidence from the text is overwhelming, and, in light of Baum’s political background, trickster personality, and subsequent work, it is all but conclusive: The Wonderful Wizard of Oz is a deliberate work of political symbolism.

Again, this conclusion does not require that each correspondence I have cited was intended allegorically or represents Baum’s precise intention. Nor does it imply that each symbolic reference has a specific correlate; often the metaphors and analogies are merely suggestive. Conversely, the presence of “inconsistencies” and the absence of an obvious moral in no way diminish the reality of the symbolism.

The Wonderful Wizard of Oz is clearly neither a pro-Populist parable nor an anti-Populist parable. Strictly speaking, it is not a parable at all if parable is defined as a story with a didactic purpose. Baum aimed not to teach but to entertain, not to lecture but to amuse. Therefore, the Oz tale is best viewed as a symbolic and satirical representation of the Populist movement and the politics of the age, as well as a children’s story. Quite simply, Oz operates on two levels, one literal and puerile, the other symbolic and political. Its capacity to fascinate on both levels testifies to its remarkable author’s wit and ingenuity.

photo of pile $20 Liberty gold coins from the era of Baum's novel

United States $20 Liberty gold coins from Frank Baum’s era

Baum, L. Frank. [1900] 1991. The Wonderful Wizard of Oz. Edited by William Leach. Belmont, Calif.: Wadsworth.
Clanton, Gene. 1991. Populism: The Humane Preference in America. Boston: Twayne.
Dighe, Ranjit, ed. 2002. The Historian’s Wizard of Oz: Reading L. Frank Baum’s Classic as a Political and Monetary Allegory. Westport, Conn.: Praeger.
Gardner, Martin, and Russel B. Nye. 1957. The Wizard of Oz and Who He Was. East Lansing: Michigan State University Press.
Gessel, Michael. 1992. Tale of a Parable. Baum Bugle (spring): 19-23.
Hearn, Michael Patrick. 1992. “Oz” Author Never Championed Populism. New York Times, January 10.
Koupal, Nancy Tystad. 1989. The Wonderful Wizard of the West: L. Frank Baum in South Dakota, 1888-91. Great Plains Quarterly 9: 203-15.
—. 2001. Add a Pinch of Biography and Mix Well: Seasoning the Allegory Theory with History. South Dakota History 31: 153-62.
Littlefield, Henry M. 1964. The Wizard of Oz: Parable of Populism. American Quarterly 16: 47-58.
—. 1992. “Oz” Author Kept Intentions to Himself. New York Times, February 7.
Moyer, David. 1998. Oz in the News. Baum Bugle (winter): 46.
Parker, David B. 1994. The Rise and Fall of the Wonderful Wizard of Oz as a “Parable on Populism.” Journal of the Georgia Association of Historians 15: 49-63.
Rockoff, Hugh. 1990. The “Wizard of Oz” as a Monetary Allegory. Journal of Political Economy 98: 739-60.

Quentin P. Taylor is an assistant professor of history
and political science at Rogers State University, Claremore, Oklahoma.


Reprinted with permission.

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The Money Project

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Courtesy of: The Money Project
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