Fortune Magazine (1931): The Great Gold Argument

Editor's note: Every week, Fortune.com publishes a favorite story from our magazine archives. This article from February 1931 explores a topic that's still hotly debated today -- what is the true value of gold? Back then the U.S. economy was in the throes of what would become known as the Great Depression, gold was the monetary standard, and it traded for just over $20 an ounce.
In two parts, hereunder. Part one, a free-hand sketch of the gold-money-credit machine which links gold dollars to doughnuts. Part two, bold summaries on what's said to be the matter with that mechanism. The whole, a primer designed to give the lay executive a running familiarity with the most bitterly discussed economic question of the day.

FORTUNE -- In the vaults of the Bank of England (Threadneedle Street, London), men are piling gold on a truck. The gold they lift has been bought and paid for by a foreign country and is about to be delivered. In the factory of Henry Ford (Dearborn, Michigan), men are tightening bolts on a moving automobile chassis. The car they are building will presently roll away and be offered for sale. Does every bar which is lifted from the vaults, 4,000 miles away, change the value of "the automobile Henry Ford's men are bolting together? If so, how? Conversely, will every new Ford which rolls from the line change the value of those so-accurately weighed bars under Threadneedle Street? FORTUNE here presents a working drawing of the machine which links them, an inconceivably complex machine in the study of which a known fact is something to cling to in a whirling eddy of hypotheses, trends, theories, nebulous generalizations, and conflicting interpretations. For the lamentable fact is that the engineers who watch over this machine disagree on its nature, about how to operate it, about what, if anything, is the matter with it, and, if it is malfunctioning, about how to fix it.

This much is certain: the commodities of the world are priced, first, in the money of the country in which they are produced. The nations of the civilized world (China is practically the only exception) relate their moneys to gold. Thus in the last analysis, according to the laws of today, gold is the common denominator in whose terms everything the world produces may be measured. Mechanically this involves:

I.-The physical existence of a supply of gold somewhere in the world.

II.-The issuance of currency against this supply of gold, extending and facilitating its everyday use.

III.-The establishment of credit beyond the limits imposed by any strict ratio of gold to currency.

The fundamental facts behind the ideas of currency and credit are (1) that there isn't, today, enough gold in the world for the everyday use, at current prices, of 1,906,000,000 people; and (2) that even if there were, the metal would be too unhandy.

Read the rest here.

40 Years Ago: The US abandons the last links to the gold standard

Forty years ago Monday, President Nixon stunned the world by repudiating America's pledge to redeem the dollar for gold at a rate of $35.00 oz.  Of course this pledge was only made to other central banks under the Bretton Woods Treaty (1944).  So as a matter of practical reality the last true gold standard, backed by full convertibility, had died in 1933.  But the writing had been on the wall even before then.  The massive expenditures required to fund the slaughter of the First World War could never have been undertaken using a hard currency.  As it was, most of Europe was bankrupted by the war.  Postwar efforts to reestablish the gold standard were short lived and ultimately abandoned as nations were forced to come to grips with the global economic crisis of the 1930's.

Nixon has been roundly criticized by gold bugs for the move but in reality he had little choice.  Like Obama he was left holding the bag by his predecessor who spent the country into bankruptcy.  LBJ had needed huge amounts of money to fund the two wars he started and ultimately lost (Vietnam and the war on poverty).  And the Federal Reserve had then as now printed money, although then they were in fact violating treaty obligations by creating more currency then could be redeemed in gold.

Oddly, like Obama, Nixon also did almost nothing to reverse the disastrous fiscal policies he inherited.  Point in fact he too exacerbated the situation with continued war and social spending coupled with his appointment of Arthur Burns as FED Chairman.  Still he had no choice but to de-link the dollar or massively devalue it.  The rest of the world had figured out our game and their central bankers were rushing to cash in their paper money for the real thing at an alarming rate.  By the summer of '71 we quite literally had a run on the bank at the FED as gold was poring out of the FED's vaults and being shipped overseas.  And so on August 15th 1971 Richard Nixon closed the gold window and for the second time in less than a half century the US defaulted on its obligations.

And the rest as they say is history.

In observation of this momentous anniversary I will be posting a number of articles and essays related to the gold standard from differing perspectives.  No endorsement of any views in them should be presumed unless specifically stated.

Sacrificing for our Faith

Most of us talk about it.  But few of us are called to do a lot of really heavy lifting.  Here is one man who has been.

British Leader Seeks Public Housing Evictions for Rioters and Their Families

LONDON — As Britain begins to weigh the costs of the rioting of recent days and ponder measures to prevent a recurrence, the government of Prime Minister David Cameron put forward on Friday a new way of punishing the looters and vandals who rampaged through many of the country’s cities and towns: kick them and their families out of their government-subsidized homes.

If carried out on the scale Mr. Cameron and his ministers have proposed, the measure would probably be the most punitive of the sanctions that they have said would be considered in response to the worst civil disorder in a generation. More than 10 million Britons, about one in six, live in public housing.

Read the rest here.

Former Marine to be awarded Medal of Honor

A former Marine corporal who repeatedly braved enemy fire in attempting to rescue four comrades in Taliban-infested eastern Afghanistan has been selected to receive the Medal of Honor, the highest award given to members of the armed services, the White House announced Friday.

Dakota Meyer, a former turret gunner and scout sniper from Kentucky, is only the third living veteran of the Afghan and Iraqi conflicts to be chosen for the honor, and the first living Marine to designated for the award since 1973.

Meyer, 23, will be honored at a White House ceremony next month for “courageous actions” while serving in Afghanistan’s eastern Konar Province in Sept. 8 2009, according to a statement issued by the White House.

Meyer charged multiple times into a Taliban-held area near the eastern village of Ganjgal after learning that three fellow Marines and a Navy corpsman were missing after being attacked by a group of insurgents. Under heavy enemy fire, he located the four Americans--all of them dead--and extracted their bodies with the help of Afghan government troops.

“Sergeant Meyer embodies all that is good about our nation’s Corps of Marines,” said Gen. James F. Amos, Commandant of the Marine Corps in a statement.

Read the rest here.

Rick Perry’s entry sets up a clarifying contrast

Texas Gov. Rick Perry’s entry into the presidential race puts into especially sharp focus the clash of visions between Republicans and President Obama over the proper role of government.

In Perry and the state he has led for more than a decade, Republican voters are being offered the Platonic ideal of the GOP model for economic growth — low taxes, scant regulation and limited public services.

Texas has no income tax, ranks 46th overall for the taxes it collects per capita and has the strongest job growth in the country. The state has accounted for between 30 percent and half of the net new jobs in the country in the past two years, depending on who is counting.

While Obama points to his universal health care law as a historic achievement, Texas is often cited as an example of the need for health-care reform: A quarter of Texans lack coverage, the highest share in the country.

Read the rest here.

Appeals court strikes down health-care law’s insurance mandate

A federal appeals court Friday struck down a central provision of the 2010 health-care law, ruling that Congress overstepped its authority by requiring virtually all Americans to obtain health insurance.

The divided three-judge panel from the U. S. Court of Appeals for the 11th Circuit in Atlanta is the first appellate court to rule against any portion of the statute. The decision marks a significant victory for the 26 Republican attorneys general and governors who challenged the health-care law on behalf of their states.

Read the rest here.

Tough Week

Bouncing back from a bout of stomach flu on Wednesday while coping with my ill step-father.  Add to that the arrival of my two nieces for a visit.  Great kids, but they are a handful.  This week coming should be interesting.

For my fellow Mets fans... Top Ten Reasons to Keep Going to Citi Field

No. 10. For the remainder of the season, fans will be selected at random to play second base.
No. 9. Beautiful sunset view over Manhattan from the mezzanine deck.
No. 8. You’re safe from getting hit by a home run.
No. 7. To find a date. (If any person is able to handle all that disappointment and still keep showing up, you’ve found a person who will stick with you through the tough times.)
No. 6. The apple will now pop up whenever Jason Bay gets an extra-base hit.
No. 5. They have started using real batting helmets for Carvel ice cream sundaes.
No. 4. Great parking for the U.S. Open.
No. 3. Thanks to the New York State Senate, Mr. Met will finally be able to marry the San Diego Chicken in an on-field ceremony this September.
No. 2. Because when you call up to order tickets and ask them what time the game starts, the clerk says, “What time can you be here?”
And, drum roll please, the No. 1 reason to keep going to Citi Field over the next two months:
(pause for dramatic effect)
Ollie Perez won’t be pitching!

Source

OCA: Mark Stokoe Dismissed From Church Positions

Joseph Flavius has the story at Byzantine Texas.    Mark's contributions to bringing an end to the scandals that plagued the OCA are well known.  Unfortunately there has been a lot of gossip about his personal life, most of which he has not denied, that has been spread by his detractors.  I intensely dislike this kind of "gotcha" game.  It bears repeating that gossip is among the most sharply condemned sins by Scripture and the saints. But all of that aside there are obviously some standards that have to be upheld for persons occupying offices within the church. Unless he was prepared to deny the allegations or repent, his removal was necessary to avoid scandal.  And truth be told, he probably should have resigned.  This is very sad.

Epic Dylan Ratigan Rant On Washington And The Banksters

Polygamist Warren Jeffs Gets Life In Prison

SAN ANGELO, Texas — Polygamist leader Warren Jeffs was sentenced Tuesday to life in prison for sexually assaulting a 12-year-old girl he took as a bride in what his church deemed a "spiritual marriage."

The head of the Fundamentalist Church of Jesus Christ of Latter Day Saints also received a 20-year sentence for the sexual assault of a 15-year-old girl.

He stood quietly Tuesday as the decision of the Texas jury was read. He received the maximum sentence on both counts. They are to be served consecutively.

Texas Department of Criminal Justice spokesman Jason Clark said the 55-year-old will be eligible for parole in 35 years.

Prosecutors had asked the jury for the life sentence after presenting their painstaking and sometimes graphic case, and rejected Jeffs' contention that he was being persecuted for his religious beliefs.

"The evidence in this case shows that this isn't a prosecution of a people," prosecutor Eric Nichols said in his closing argument. "This is a prosecution to protect people."

Read the rest here.

Federal Reserve to keep printing money through 2013

The Federal Reserve pledged to keep interest rates very low for two more years after a policy meeting Tuesday in an effort to try to bolster the flailing U.S. economy.

Even as it acknowledged that “economic growth so far this year has been considerably slower” than Fed leaders had expected, the central bank’s policy committee gave no indication that it will launch any major new programs to try to combat the weakening economy and financial markets. It said only that it is “prepared to employ” other tools to support the economy “as appropriate.”

And even the modest step of promising to keep very low interest rates in place through summer 2013 provoked sharp internal disagreement: Three members of the Fed’s policy committee dissented, the most to do so since 1992.

U.S. stocks dipped after the announcement but quickly recovered, surging back into positive territory and ending the day with solid gains. But the Dow Jones industrial average, the Standard & Poor’s 500 index and the tech-heavy Nasdaq fell far short of recouping Monday’s dramatic losses, when they shed a total of about $1.2 trillion in value.

By explicitly stating the central bank’s easy money policies — specifically, a short-term interest rate target near zero — for two more years, the Fed is hoping to lower interest rates throughout the economy to encourage immediate investment and consumption. The Fed had previously said only that rates would remain low for an “extended period,” which was widely taken to mean a few months.

Read the rest here.

Catholic religious order sacks dissident priest

The Rev. Roy Bourgeois, who refused to renounce his increasingly public campaign to see women ordained as priests in the Roman Catholic Church, has been notified of his dismissal by his religious order, the Maryknoll Fathers and Brothers.

A letter to Father Bourgeois, signed by the superior general and the general secretary of the Maryknoll order in the United States, said the dismissal was necessary because of his “defiant stance” in opposition to church teaching.

“Your numerous public statements and appearances in support of the women’s priests movement continues to create in the minds of many faithful the view that your position is acceptable to our Church,” the letter said, adding that Father Bourgeois had caused the church “grave scandal.”

Father Bourgeois has gone further than any other priest in good standing to ally himself publicly with the growing women’s ordination movement. The group Roman Catholic Womenpriests claims to have ordained 120 women as priests and 10 as bishops in the last few years. The Vatican regards the ceremonies as illicit and invalid. Father Bourgeois participated in one such ceremony in 2008, and since then has given speeches around the country in support of female priests.

“They want two words: I recant,” Father Bourgeois said. “And they can’t get that out of me. For me, the real scandal is the message we are sending to women: you’re not equal, you cannot be priests, you’re not worthy.”

The case now moves to the Vatican for his formal removal from the priesthood, or laicization. Father Bourgeois said he had hired the Rev. Thomas Doyle, a canon lawyer known for testifying as an expert witness on behalf of victims suing the church in clergy sexual abuse cases, to represent him at the Vatican.

Read the rest here.

Great Britain: Riots spread to 4th city

LONDON — British Prime Minister David Cameron said on Tuesday police will crack down hard to quell a wave of rioting and looting across London over the past three nights — the worst violence in the British capital in decades.

Citing "sickening scenes," Cameron announced that 16,000 police officers would be deployed on London's streets on Tuesday — up from 6,000 on Monday night.

Cameron, who cut short his summer vacation in Italy and recalled Parliament from its summer recess to deal with the crisis, also promised "even more robust police action."

"This is criminality pure and simple and it needs to be confronted," he added. "Justice will be done and these people will see the consequences of their actions. If you are old enough to commit these crimes, you are old enough to face the punishment."

As calls mounted for stronger measures, Deputy Assistant Commissioner Stephen Kavanagh said police would consider using baton rounds — rubber or plastic bullets. These have been used in Northern Ireland and while they are seen as a non-lethal alternative, they have caused deaths in the past.

Read the rest here.

Japan Held Nuclear Data, Leaving Evacuees in Peril

FUKUSHIMA, Japan — The day after a giant tsunami set off the continuing disaster at the Fukushima Daiichi nuclear plant, thousands of residents at the nearby town of Namie gathered to evacuate.

Given no guidance from Tokyo, town officials led the residents north, believing that winter winds would be blowing south and carrying away any radioactive emissions. For three nights, while hydrogen explosions at four of the reactors spewed radiation into the air, they stayed in a district called Tsushima where the children played outside and some parents used water from a mountain stream to prepare rice.

The winds, in fact, had been blowing directly toward Tsushima — and town officials would learn two months later that a government computer system designed to predict the spread of radioactive releases had been showing just that.

But the forecasts were left unpublicized by bureaucrats in Tokyo, operating in a culture that sought to avoid responsibility and, above all, criticism. Japan’s political leaders at first did not know about the system and later played down the data, apparently fearful of having to significantly enlarge the evacuation zone — and acknowledge the accident’s severity.

Read the rest here.

Recall vote opens in Wisconsin

* It’s decision time: After months and months of drama, today the voters have their say in elections to recall six GOP state senators who helped Scott Walker pass his onerous budgeting and anti-union proposals, which triggered a massive backlash that has turned Wisconsin into a dress rehearsal of sorts for 2012 and ground zero in the national war over the future of organized labor.

It will all be decided by turnout, and what’s got both sides nervous, as Dem pollster Mark Mellman told me the other day , is that there’s no precedent of any kind to predict turnout in a slate of six off-year recall elections. Andy Kroll has an eye-opening glimpse into the scope of the Dem/labor turnout operation. And National Review writer Robert Costa says “Republicans are worried” because Dems have energy on their side and are on track to oust GOP state senators Dan Kapanke and Randy Hopper, and only need to win one of two races against Alberta Darling and Luther Olsen, both of which remain very close calls, to take back the state senate.

As Chris Bowers rightly notes, the three races that will likely decide the outcome are those to recall Hopper, Darling, and Olsen — and there’s simply no predictive model in existence for the elections that are taking place today.

Whatever ends up happening, Wisconsin Dems and labor have already succeeded in one sense: They reminded us that it’s possible to build a grass roots movement by effectively utilizing the sort of unabashed and bare-knuckled class-based populism that makes many of today’s national Dems queasy. Their effort — whether or not they take back the state senate — could provide a model for a more aggressive, populist approach for national Dems in 2012.

Read the rest here.

Stocks rally after huge sell off

NEW YORK — Wall Street rallied at Tuesday’s opening bell, rebounding from the previous session's nosedive, as investors looked to a Federal Reserve statement for clues on how it may combat the growing perception the nation was headed for recession.

The Dow Jones industrial average was lately up over 200 points, having plunged 635 points Monday after Standard & Poor's downgraded the U.S. credit rating late Friday. The broader market recorded its worst loss since December 2008 at Monday’s close and approached bear market territory.

Read the rest here.

Huge sell off continues overseas

Asian markets are all down sharply (it's Tuesday morning there).  The Korean stock market has suspended trading with its main index already down 8%.  Oil has dropped to $75 a barrel. The flight to gold and cash is continuing with gold trading near $1750 oz and short term government bonds offering record low yields (near zero).  Selling is accelerating after worse than expected inflation reports from China.

House Shuts Down Its Page Program

WASHINGTON — In the more than 175 years since young people began coming to Washington to work as Capitol messengers, the experience of being a Congressional page has marked the start — and on occasion the scandalous end — of many a political career.

Now the ubiquitous teenage pages, with their navy blue blazers and earnest looks, will disappear from the House side of the Capitol — a victim, House leaders said Monday, of budget cuts and improvements in technology, like BlackBerrys, that have rendered their document-ferrying and message-taking duties obsolete.

The announcement came in a “Dear Colleague” letter to lawmakers from Speaker John A. Boehner, Republican of Ohio, and the House Democratic leader, Nancy Pelosi of California, who said they decided to terminate the program after a review by outside consultants raised concerns about its costs and effectiveness.

The news caught alumni of the program, including current and former members of Congress, by surprise. Many called it short-sighted. (The pages will not disappear from the Capitol entirely; the Senate will still have them.)

Read the rest here.