A Crime to Own Gold

January 30, 1961

When this country went off gold in 1933 its bonds and currency contained the most solemn pledges that they would be redeemed in gold on demand, at their face value in dollars, at the rate of $20.67 an ounce. This pledge was dishonored. Holders who asked for the gold they assumed was theirs were denounced as enemies of the country. They were ordered to turn over all their holdings of gold to the government. Further possession of the metal was made a criminal offense.

But in this act of bad faith there was one oversight. The government had neglected to make it a crime for American citizens to buy or own gold abroad. Discovering this 28 years later, the Eisenhower Administration, though it had only one week to go, could not wait for the Kennedy Administration to assume office before plugging the awful loophole.

Let us pass over such trivial questions as the abridgment of personal liberty or private property rights. Will the new prohibition accomplish its ostensible aim of “protecting the integrity of the dollar” and halting or reducing the outflow of gold? Obviously it will do nothing to bring gold back. The amount of gold Americans hold abroad is not known. Estimates range from a top of $1 billion to less than $50 million—trivial sums against a world monetary gold stock of more than $40 billion or even our shrunken holdings as of Jan. 11 (the lowest since 1939) of $17.6 billion.

FLOW-BACK UNLIKELY

But there is no reason to suppose that any substantial part of this American-held gold will flow back. Putting aside probable evasions of the new ruling, even the Americans who comply are unlikely to sell their foreign- held gold for dollars. They bought the gold precisely because they did not trust dollars. Therefore they will in all likelihood sell it for foreign currencies or invest- ments—anything but dollars. Moreover, as they have until June 1 to sell, and cannot get less than $35 a ounce for it, they may hold until then against possible dollar devaluation in the meantime.

True, the new regulation may prevent Americans from buying more gold abroad. But it will probably tempt foreigners to buy more gold at $35 an ounce while they still have the chance. These foreigners, as pointed out by S.J. Rundt, a consultant on international business, include residents of Germany, Switzerland, Lebanon, Argentina, Belgium, Canada, Costa Rica, Ecuador, Jordan, Kuwait, Panama, Paraguay, Peru, Saudi Arabia, Uruguay, and Yemen. These people, unlike those in the Land of Liberty, are allowed to own, buy, or sell gold in any form.

REDUCING CONFIDENCE

In brief, the Eisenhower Administration’s expiring act will further reduce confidence in the dollar. It will lead foreigners to conclude that our currency situation must be more desperate than they had supposed. Otherwise, why would a government with only one more week in office feel that action could not wait that long? They will also assume that this new prohibition is a prelude to further restrictions on the convertibility or transferability of the dollar, or on the movement of American capital.

The new prohibition attacks symptoms and neglects causes. It blames the “speculators.” It blames the people who have lost confidence in the dollar instead of re-examining or correcting the policies that have caused them to lose confidence.

What the United States faces today is only derivatively a “balance of payments” crisis; it is primarily a crisis of inflation. If for a moment we neglect the goods and dollars that we deliberately give away in foreign aid, payments always balance—for the simple reason that people insist on being paid for what they sell. If, in return for the goods they sell to us, foreigners buy gold instead of other goods, it is because they think gold is the better bargain. They will think this as long as our commodity prices, as a result of domestic inflation, are too high as compared with the price at which we sell gold.

The real and only permanent cure for the gold outflow and the “deficit” in our balance of payments would be to halt our inflation. But this is the one course that nobody in office is seriously discussing.