In Wartime, Thoughts Turn to Gold
By JASON GOODWIN
War and gold have emerged together from an ancient swamp, summoned by the 21st century. While the Bush administration ponders unrelentingly the holes in Saddam Hussein's dossiers, gold has climbed to its highest rate in five years. The dollar, meanwhile, continues its descent.
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"We have gold," Herbert Hoover explained to his successor, FDR, "because we can't trust governments." Many on the left today, in their disdain for a government contemplating war, cleave to the second half of Hoover's observation. Others, not critical of the need to punish Saddam but worried about the practical consequences of an armed engagement, ask how much it will all cost, and how it will affect the currency. So we drift back to gold.
Gold, the argument runs, doesn't stoop to flattery. Gold, being tight-lipped, offers no hostages to fortune. It remembers nothing, venerates no one. It trumpets no ideals, protests no loyalties, offers no jam today or tomorrow, doesn't much care if a war rumbles on for years or finishes in a triumphant blitzkrieg. Cold, old and remote, it doesn't even pay interest. The dimmer the days, the more irrational the conflict, the brighter it gleams.
The very first U.S. paper dollars were voted into existence on June 22, 1775, to pay for the Revolutionary War. The amount -- two million in Spanish milled dollars -- was about a fifth of all the hard money in North America at the time; the paper was to be redeemed in stages. Although victory would eventually bring the 13 colonies their independence, in those early years of paper money the war still had no particular end in sight. The allied colonies were confused as to ways and means. They had no flag or president. They were not properly a nation. They faced the best army in the world. Gold and silver were invisible; it was the first time in history that anyone went to war without the money to pay for it.
It was left to Congress's paper dollars, the so-called Continentals, to stiffen the sinews of war and to act as the visible emblem of American purposes. Magnificently did its designers rise to the occasion, ransacking the old alchemical literature for symbols and mottoes that were conspiratorial and new. There was the unfinished pyramid, and a harp with 13 strings, and a plow in a field: Hinc Opes, said the motto -- "hence comes our power." Perseverando, said another, with a beaver gnawing at a tree: "I will go on." This wasn't the work of a faceless bureaucrat. Benjamin Franklin, no less, was in charge of getting them printed.
Continentals bore up pretty well for the first year, and then began to sink. Their value was set in a continuous dialogue between Congress and the people, between buyer and seller, between optimist and realist. The faster they sank, the faster Congress issued them. George Washington fumed that "a wagonload of money will scarce purchase a wagonload of provisions," echoing one doughty congressman who had refused to impose taxes on his constituents. "We can send to our printer, and get a wagonload of money," he pointed out, "one quire of which will pay for the whole."
The British put their own counterfeit continental bills into circulation in a well-publicized move to undermine faith in the new currency. It was a new form of warfare. "The reason, perhaps, why the invention was reserved for you," Thomas Paine wrote to Gen. William Howe, "is because no general before was mean enough even to think of it." But it was an effective strategy.
In 1778, Congress found it necessary to repeat its promise to redeem all continental currency at full value in silver -- anything less would leave the U.S. to "appear among respectable nations like a common prostitute among chaste and respectable matrons." But she chose harlotry eventually, as everyone had expected. In 1780, the value of a dollar was cut 40-fold at a stroke. Amid the talk of outraged creditors and ruined orphans, there was an outbreak of hilarity. Some sailors in Boston took their pay and stitched the notes up into paper coats and paper britches; a barber used them to repaper his shop; the phrase "not worth a continental" entered the language. At the war's end the dollar, Jefferson said, expired without a groan. The Constitution enshrined the framers' determination never to let the government issue paper money again.
But what mattered to the revolutionaries of 1776 was not that the money sank; only that it stayed afloat so long. By 1780 paper money, that ruinous scapegrace of the revolution, had done what gold and silver never could: it had established a nation's right to life, liberty and the pursuit of happiness, the right to determine its own future.
Currency is about self-control -- the social contract in motion, the point where trust and promises elide, testament to our ability to live among ourselves and to frame our goals. Paper money not only follows our curves, it projects our wishes and desires. It shares our weaknesses, but it also reflects our strengths.
If gold is a magnet for our wartime fears, it is only a brief outburst of irrationality in an irrational world, an atavistic sentiment, fleetingly indulged. Gold will always be a part of the mystery of money. Just as it's good for our souls, once in a while, to keep warm around a log fire, or settle down with a good old-fashioned book, so gold can never disappear, because it's an eternal, disinterested witness to the tragicomedy of human history.
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Paper money is more like us. Sometimes it struggles, and lets us down. It makes promises, and breaks them too. It's a creature of society. It looks most unreliable when there's a war on. But if paper money is only a promise, the promise is a reflection of hope. And hope is our element. We hope it needn't come to a war. We hope, if it does, that we'll win. We hope that having won, we won't find ourselves in a situation so tangled it might have been better not to have started anything in the first place. We hope we can trust our governments, and get on with the quiet drama of our lives. Another day, another dollar.
Mr. Goodwin is the author of "Greenback: The Almighty Dollar and the Invention of America," to be published next month by Henry Holt.
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