Conspiracy theorists’ on-again-off-again relationship with gold

When the price of gold falls, it’s generally good news for the rest of the economy. Most accounts are attributing gold’s largest tumble since 1980 to optimism about the U.S. economic recovery. But not surprisingly, others sense darker forces at work, attributing the fall to the U.S. treasury sending a message to the state of ...

By , a former associate editor at Foreign Policy.
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610942_130415_W2.jpg

When the price of gold falls, it's generally good news for the rest of the economy. Most accounts are attributing gold's largest tumble since 1980 to optimism about the U.S. economic recovery. But not surprisingly, others sense darker forces at work, attributing the fall to the U.S. treasury sending a message to the state of Texas, an international plot to undermine Cyprus, manipulation by Goldman Sachs, and various other scenarios. 

The paranoid anti-government gold bug has become something of a trope in American politics and pop culture (even inspiring a beloved sitcom character) but what are the origins of gold's prominent place in the pantheon of American paranoia? You might think it goes back to the U.S. abandonment of the gold standard, but the meme actually goes back further and is far more complicated than that. 

According to the invaluable encyclopedia, Conspiracy Theories in American History,  gold-related conspiracy theories go back to the 18th century, when the Bank of England -- the world's first central bank -- secretly practiced what's known as "fractional reserve banking": banknotes were theoretically redeemable in gold, but the bank only maintained enough reserves to back a fraction of the notes it issued. In theory, if everyone in Britain suddenly decided to convert their notes to gold, they'd be screwed. 

When the price of gold falls, it’s generally good news for the rest of the economy. Most accounts are attributing gold’s largest tumble since 1980 to optimism about the U.S. economic recovery. But not surprisingly, others sense darker forces at work, attributing the fall to the U.S. treasury sending a message to the state of Texas, an international plot to undermine Cyprus, manipulation by Goldman Sachs, and various other scenarios. 

The paranoid anti-government gold bug has become something of a trope in American politics and pop culture (even inspiring a beloved sitcom character) but what are the origins of gold’s prominent place in the pantheon of American paranoia? You might think it goes back to the U.S. abandonment of the gold standard, but the meme actually goes back further and is far more complicated than that. 

According to the invaluable encyclopedia, Conspiracy Theories in American History,  gold-related conspiracy theories go back to the 18th century, when the Bank of England — the world’s first central bank — secretly practiced what’s known as “fractional reserve banking”: banknotes were theoretically redeemable in gold, but the bank only maintained enough reserves to back a fraction of the notes it issued. In theory, if everyone in Britain suddenly decided to convert their notes to gold, they’d be screwed. 

In the early days of the United States, banknotes were issued by chartered state banks. These notes were theoretically backed by gold and silver, but these payments could be suspended in times of crisis. The first high-profile gold bugs in American politics were the Jacksonian Democrats — particularly Thomas Hart “Old Bullion” Benton, who interpreted Article 1, Section 8, of the constitution, which gives Congress the right to “coin money” literally, and tried to block banks from printing paper money entirely. Jackson required payments on government land to be made in gold. The first big move away from specie-backed money came with the civil war, when Abraham Lincoln authorized the printing of “greenbacks,” bill that were not immediately redeemable by gold. The U.S. was then formally put on the gold standard in 1873 when congress demonetized silver.

In the late 19th century, things got a little more complicated when agrarian populists argued for the free coinage of silver in order to inflate the U.S. monetary supply. William Jennings Bryan of “cross of gold” speech fame was the most prominent of the silverites. (There’s a popular interpretation of the Wonderful Wizard of Oz, which holds that L. Frank Baum’s book was an allegory for the debate over monetary policy, but nobody seems to have read it that way until six decades after it was published.)

The more extreme wings of the silverite movement argued that powerful financial interests were actually manipulating the price of gold, which Conspiracy Theories in American History points out, actually “flipped the old Jacksonian and English “goldsmith” views on their heads”:

“They had argued that only through a gold standard could the “common man” be protected against the machinations of “big business” and the “money interests.” Within a fifty-year period, however, conspiracy theorists – many of them the same voices who had called for a gold-only standard – now lobbied for a bimetallic standard. Businessmen and bankers favored a gold standard, not because they controlled it, but because it was predictable and stable.” 

In 1913, monetary authority was further centralized with the creation of the Federal Reserve — a move that some, including former Congressman Ron Paul, today maintain was unconstitutional. The deflationary shocks of the 1920s pushed most countries to move off the gold standard, and the United States eventually followed suit under Franklin Roosevelt, who nullifed the rights of creditors to demand payment in gold, ordered gold coins and certificates worth over $100 to be turned in for other money, and increased the price of gold to $35 per ounce. Whatever effect this had on the U.S. economy, it was a power stimulus to the conspiracy industry:

Conspiracy theorists then came full circle again: Roosevelt was attempting to control the money supply of the United States by eliminating the gold reserve requirement – precisely what the previous generation of conspiracy theorists had advocated. By that time, conspiracy theories had split into two streams when it came to gold and money. One stream argued that the Rockefellers, through the bank of England (and with the support of the Rothschilds), manipulated the international price of gold. The other stream claimed that, in line with the objective of a “one-world government,” the Federal Reserve served as a tool for the Council on Foreign Relations, the Trilateral Commission, and the United Nations to weaken the U.S. economy and provide convenient inflation for politicians favored by these groups.

The gold standard was completely abandoned in 1971 when Richard Nixon cancelled the convertability of U.S. dollars to gold. 

Of course, the irony about the complaints about fiat money is that gold doesn’t really have inherent value either. Gold fixed at $35 per ounce is no le
ss artificial than greenbacks. And market shocks like today’s undermine the case for gold’s reliability. Nonetheless, the interest in gold has continued among those suspicious of the government’s control over the monetary supply, and went somewhat mainstream thanks to Ron Paul.

The next generation of fiat money-bashing is Bitcoin, the so-hot-right-now virtual currency. A distributed peer-to-peer form of money may seem like the opposite of a shiny rock that you dig out of the ground, but Bitcoin’s structure shows the influence of some gold bug ideas: bitcoins are “mined” by having computers solve a complex algorithm and there are a fixed number of them that can exist in the world. (Though it hasn’t exactly been stable in the last couple of weeks.)

It makes sense that government control of the monetary supply — which often is pretty shadowy and opaque — would inspire mistrust, but that mistrust has taken quite a few different forms over the years. 

Joshua Keating was an associate editor at Foreign Policy. Twitter: @joshuakeating

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