Gold Is a Political Metal

When I imply that there is a war against gold, gold bugs with silver hair nod in agreement. When I say that the government is opposed to the public’s using gold coins in exchange, gold bugs understand exactly. They see that the war on gold is a war of government officials against private owners of gold.

When I say that gold is a political metal, I mean more than the obvious fact that gold has political ramifications. I mean something more significant. I mean that gold has always been intertwined with politics, that gold, alone among metals until the success of the Manhattan Project added uranium to the list, has been the uniquely political metal.

In some societies, we can speak of “the silver wars.” China used a silver standard for generations. The same was true in the colonial United States. “Pieces of eight” were Spanish silver coins that served as America’s primary currency until the mid-nineteenth century. (The most detailed and accurate Constitutional history of American money is Pieces of Eight, by Edwin Viera. The older, shorter edition is more suitable for normal people. The two-volume edition is not aimed at normal people; it’s aimed at legal historians.)

After the end of the Napoleonic wars in 1815, Western European governments moved to the gold standard for international commerce. This made the gold standard the domestic monetary standard, too. But because governments adopted fixed prices between gold and silver — price controls — their laws would drive one or the other metallic coinage out of circulation. The legally overvalued money metal coins stayed in circulation. The legally undervalued money metal coins went into hoards, the black market, or were exported. This, of course, is the inevitable consequence of price controls: shortages of the item whose legal price is below the market price. Gresham’s law — bad money drives out good money — is merely an application of the law of price controls.


Political rulers throughout recorded history have asserted a monopoly over money. They have argued that the State possesses legitimate authority over the creation and distribution of money. Because gold and silver have been widely used as money metals, the State has asserted control over the monetary uses of these two metals.

This is the origin of the war against gold. Gold is widely recognized and desired as an investment. It is a highly marketable commodity. This was far more true in 1913 than it is today. Prior to the de-monetization of gold, which began in 1914, a person could take a gold coin anywhere where international trade was common and buy just about anything. It did not matter which ruler’s image was on the coin. The coin was valuable because of its gold content. The image may have helped to convey information about the coin — so much gold of a certain fineness — but the face on the coin had merely a brand-name recognition effect. The British gold sovereign was so widely recognized that James Bond carried sovereigns as late as the mid-1960’s. In “From Russia With Love,” the coins were in the booby-trapped briefcase. The ruler’s image verified the quantity of gold in the coin. It did not add value except as a kind of Good Statekeeping Seal of Approval.

Gold’s value is not independent of governments. This is because governments buy and sell gold. This activity affects its price. Gold’s value is also affected by laws against the circulation of gold coins. The Soviet Union had such laws. So did the United States, 1933—1974. But gold’s value as a money metal can exist independently of a government’s actions to subsidize or stigmatize gold’s use as money. Gold circulates as money precisely because it has a value independent of government policies. Or it did. It no longer does. Gold has been de-monetized by governments and their acolytes, the economists.

As with any scarce resource, gold moves to those holders who bid highest. The more widespread gold’s use as money becomes, the more likely that trade will accompany gold. Gold reduces risk by reducing the likelihood of default or fraud on the part of the State or its licensed agents, fractional reserve banks. A government can go bankrupt, but its gold coins will still circulate at gold’s market value. The same is true of any coin-issuing agency. The gold may be marginally more or less valuable in a particular form because of the degree of recognition of the producer, but a government that accurately certifies its gold coins will find that its coins circulate at full value even if the government itself faces bankruptcy or extinction.

Gold’s independence from the fate of governments points to a political truth that governments despise: governments are not the source of the value of gold. To the extent that gold is money, gold testifies against the sovereignty of the State in the realm of money. It testifies to the sovereignty of consumers in a free market. The free market, not the State, is the primary source of gold’s exchange value.

This means that consumers can escape from the State’s anti-consumer policies. They can buy gold. This provides them with international money, black market money, and “hoard it and spend it later” money. It provides one group of citizens with the personal escape hatch from the effects of government power-seeking. Which group? Political skeptics who do not trust the government’s money.

In olden days, this escape hatch was an insult to a king, whose face was on the coins that he was debasing by adding metal of lower value. The king wanted to increase his spending, but there was tax resistance. So, he would call in the old coins, melt them, add cheap metal, and try to spend them into circulation at the old rate for coins with higher gold content. The plan never worked. The new coins would always fall in value.

This enraged the government. It made theft through deception less effective. The citizens who spotted the fraud early would buy gold by exchanging the debased new coins for old gold coins, leaving the less perceptive, more trusting citizens holding depreciated new coins. Private citizens did what the king was trying to do, and this invasion of the king’s asserted prerogative to steal enraged kings for centuries.

Today, there are no kings, other than “King” Farouk’s famous kings of clubs, diamonds, hearts, and spades. But politicians still play the old games, and play it much better. They want the monopoly of theft that comes from passing the new, counterfeit money to the suckers (citizens) at yesterday’s lower prices. So, when a few of the recipients of the new, phony bills and credit money start unloading them to buy gold, the politicians take action. They do not want to share the benefits of being able to buy at yesterday’s prices with today’s more plentiful money.

When gold’s price rises steadily when there seems to be no war imminent or other international disaster, people start looking for a reason. The main reason is that the government is inflating. If gold’s price is rising in one currency but not others, this is additional evidence of policies of monetary inflation.

The government wants people to believe in “something for nothing.” It wants people to believe that digital money creates wealth. But if one group seeks to gain a disproportionate share of wealth by exchanging fiat money for gold, only to see gold’s price rise, the politicians try to stop this. They cry out against “speculators” who are “acting against the public interest” by “profiting at the expense of widows and orphans.” This is a more acceptable way of saying: “These private amateurs are invading our turf in the ever-profitable business of looting widows and orphans.”

A rising price of gold is like a trip-wire alarm that announces: “The politicians are at it again. Bolt down the furniture.” It is a signal, published in the newspapers, that there is something untrustworthy about the central bank’s monetary policies. It alerts entrepreneurs to start buying goods before prices rise further. So, prices rise even faster. This makes it even more expensive to buy votes with fiat money. The new money buys fewer of the goodies that politicians hand out to buy votes.

The skeptics who say “the government should never be trusted” get rid of the new money and buy at yesterday’s prices. The trusting souls who say, “The government is our friend” hang onto the money, only to see it fall in value. The skeptics win; the State-trusting citizens lose. This is an affront to the politicians. It raises the cost of trust. Economic law then takes over: “At a higher cost, less will be supplied.” More citizens begin to distrust the government.

The politicians deeply resent this aspect of gold, for the same reason that a burglar resents the widespread installation of burglar alarms.


The State has adopted several strategies in undermining the use of gold as coinage. Here are a few of the more common strategies.

Issue paper IOU’s for gold, called gold certificates.
Issue more of these certificates than there is gold to redeem all of them on demand on the same day. “Suckers!”
Allow commercial banks to do the same thing. “Suckers!”
Create a central bank that stands ready to issue gold to bail out any bank that experiences a gold run.
Allow commercial banks to suspend redemption of gold during a national emergency. “Suckers!”
Allow the central bank to confiscate the gold of the now-protected commercial banks. “Suckers!”
Make the ownership of gold illegal for citizens.
Create a gold-exchange system internationally in which foreign central banks buy interest-bearing bonds from one or two countries that back their currencies in gold: IOU’s for central bankers.
Create a central bank for central banks that will lend gold during a national bank run. Call it something other than a bank, such as the International Monetary Fund.
Suspend gold payments to foreign central banks when too many of them catch on that there are more IOU’s out there than gold to redeem them. “Suckers!”
Persuade all of the other central banks to store their gold in the senior branch of a central bank whose nation used to redeem gold on demand by foreign governments, but which defaulted decades ago. “Suckers!”
If the price of gold rises, calling attention to the monetary fraud of legalized counterfeiting, sell some of this gold to the grandchildren of those trusting citizens from whom you stole the gold. But call the sales something else, such as gold leasing. Don’t reveal a reduction in the official reserves of gold.
Allow central banks make a substitution: written promises to pay gold, issued by private organizations called bullion banks, instead of actual gold.
Wait for the price of gold to rise, thereby bankrupting the bullion banks, which will not be able to repay. These are all corporations, and so enjoy limited liability benefits. No one goes to jail.

In this final scenario, who wins? All those people who bought gold while the gold-leasing operations lowered the market price of gold.

Today, the central banks’ gold is steadily being repatriated to private owners. The central banks are subsidizing the future net worth of gold buyers.

When there is finally no more gold to lease, or when central bankers at long last figure out that IOU’s issued by recently bankrupted gold bullion banks are not really what central bankers need to establish public confidence in their forecasting abilities, the price of gold will skyrocket. At that point, the public will decide it’s time to buy — at high and rising prices.

Those who have already bought will then look at the rest of the population, which failed to buy while the buying was good, and very quietly, in private circles, issue their unofficial assessment: “Suckers!”


Politicians are guided by the short run. Central bankers take a longer view than politicians, but ultimately, they are the handmaidens — if that’s the correct metaphor — of the politicians. They do what they are told during a political crisis.

Politicians care nothing about gold today. This is something new. This was not true in 1971 or 1931. The economists care just as little. What gets politicians’ attention is the interest rate. The same is true of investors. So, the central bankers can play games with gold, lending it at 0.3% per year, as if this were a wise move. Of course, this arrangement is a whale of a deal for bullion banks, which borrow low, sell the gold, and lend high.

But what about the day of reckoning? What about when gold starts up, and bullion banks cannot afford to buy it back and pay off the central banks in the commodity borrowed? Central bankers don’t care. They think that gold will never again be a factor in the monetary affairs of mankind. When they think “never,” they mean in their lifetimes.

They may be right. But the lifetime of one generation is short compared to the affairs of mankind.

Events will speed up and opinions will change fast when the public at last figures out that they have once again been the victims of the government’s experts. They will see the price of gold rise. They will once again pay attention to the price of gold. This will focus attention on monetary policies. This will put central bankers in the place they hate to be: the spotlight.

But, in the meantime, central bankers can create short-term losses for the long-term winners. They can sell (lease) more gold and turn gold price increases into spikes. They can scare off most gold investors for a long time: skeptics who don’t have deep pockets. They can restrict the speculative gains and increase the set-backs by dumping gold.

They will do this. Count on it. Central bankers do not want to let the public know that “the public’s gold” (ha, ha) is gone, that it has been sold to jewelry wearers and industrial manufacturers. The game must go on, but a rising price of gold reveals the corruption and deception of the players who make the rules.

What is happening, unseen, is that what was the public’s gold in 1913 is being sold back to them. The whole idea of “the public’s gold” was a sham from day one, a way to get the suckers to turn over their gold for IOU’s issued by commercial banks or governments. Deposit by deposit, the public’s gold was turned over to professional liars and counterfeiters: fractional reserve bankers and politicians. When the gold was confiscated by central bankers in 1914 and 1933, in the name of “the public good,” the public ceased to own any gold. The entire notion of “the public’s gold” that is held in trust by the government and the central bank is the very reverse of the actual situation. The public’s gold ceased to be the public’s gold when it became “the public’s gold.”


The common man will lose. He always loses when fraud is legalized by the government. The common man wins only when markets are free, contracts are enforced, and fraud is prosecuted. None of this applies to the gold market because the State asserts a higher law than the law of contracts: the law of State sovereignty over money.

What, then, of the not-so-common man? If he distrusts the promises of the politicians, then he will take advantage of the fraud of gold leasing. He will buy the leased gold, which becomes his, leaving the bullion bankers to worry about repayment.

In the era of the international gold standard, the public trustingly handed over their gold coins to scam artists in three-piece suits who issued IOU’s and then defaulted on the contracts, with the government’s approval. Today, the spiritual heirs of the scam artists are selling back the confiscated gold to the biological heirs of those long-dead trusting souls. You and I can buy gold today at lease-subsidized prices in exchange for fiat money. I say, “This is an opportunity not to be missed.”

October 27, 2003

Gary North [send him mail] is the author of Mises on Money. Visit For a free subscription to Gary North’s newsletter on gold, click here.

Copyright © 2003