Commentary Magazine


Contentions

“A Barbarous Relic”

Jennifer notes this morning that Ron Paul wants an audit of Fort Knox and the New York Federal Reserve Bank to see how much gold is stored there, if any. This is pure conspiracy theory, for one thing. Given the fact that both Fort Knox and the New York Fed have very large numbers of people who work there, with someone on-duty 24 hours a day, how could billions in gold be removed without the story getting out? As Benjamin Franklin said, “Two men can keep a secret, if one of them is dead.”

For another thing, most of the gold held in the vaults 85 feet below street level at the New York Fed on Liberty Street in lower Manhattan does not belong to the United States. It belongs to many of the world’s other countries, who store it there to facilitate transactions in gold between them. So if that gold is gone, it would not only be fraud; it would be theft, as well.

The truth of the matter is that the last link between gold and money was severed in 1971, when President Nixon ended the right of other countries to redeem dollars in gold. Individuals had lost that right in 1933. So if the gold in Fort Knox were to suddenly vanish into the bowels of the earth, as once happened to the contents of Scrooge McDuck’s money bin (don’t worry, he got it back), it wouldn’t really matter. Money today is money because people believe it to be money (i.e., “a commodity that is universally accepted in exchange for every other commodity”). If that belief were to flicker, if people were to begin to doubt the acceptability of the dollar in the market place, then it wouldn’t matter how much gold was stored in Fort Knox.

As Lord Keynes wrote in Monetary Reform, gold, as a monetary standard, “is already a barbarous relic.” That book was published in 1924, 11 years before Ron Paul was born.