Gold Bugs: The mercantilism of populists

In the latest Harper's, Thomas Frank writes: "The appeal of precious metals ... seems almost always tied to the rise of a particular political viewpoint, which foresees that the world will either return to the hard-money wisdom of the Hoover Administration or (more likely) be punished for its paper-money sins by the mighty hand of history itself." His subject for this month is the mania for gold hoarding fueled by advertisers on Glenn Beck's radio program and elsewhere. Frank notes that when the U.S. went off the gold standard in the 1930s, doing so was so widely recognized as a good thing that early editions of the Monopoly game enabled you to collect $50 if you drew a "We're Off the Gold Standard" card from the Community Chest pile. By comparison, he argues, the attitude of 21st century gold bugs "is not so much an ideological preference as it is a repudiation of modernity." Specifically, Frank contends that gold bugs have never reconciled themselves to the government's power to print "fiat" money without constraints dictated by a nation's precious-metal stores. They're driven by a pessimistic suspicion that "this technocrat-made system will come crashing down," after which "the economists and politicians will get their comeuppance [and] the complacent masses will cry out for the discipline of gold."

Frank has a habit of dividing everything between left and right or pro- and anti-government. But by focusing on the allegedly "right wing" anti-government bias of gold bugs, he misses a point that he actually makes in the body of his article. He recalls that laissez-faire economists a decade ago sneered at gold bugs, arguing that "gold has been marginalized because the world has changed," and that "the best anchor is the discipline of markets." While Frank promptly sneers at "the discipline of markets!" he fails to notice the contrast between that and what he'd called "the discipline of gold." It's as if he knows that something more is going on here, but can't bring himself to say it. Gold mania may well be a kind of repudiation of government, and Frank also recognizes it as a repudiation of finance capital, but it also seems to be a repudiation of markets themselves. But if that's so, we're not dealing with conventional conservatives or libertarians as Americans have come to know them. What are we dealing with, then?

The spectacle of "silver bugs" agitating to drive up the price of their preferred metal confuses Frank, since "free silver" had once been the battle cry of populists who wanted to increase the circulating medium so they could do business and pay debts more easily. "I have no idea how investing in silver is supposed to liberate the proletariat this time," he admits. That may be because the hoarding impulse hearkens back past historical populism to the mercantilist instincts of pre-modern times. Mercantilists thought a country's economic well-being was determined by the volume of precious metals in its treasury, not by anything we today identify with its gross national product. The entire idea depended upon gold having some kind of absolute, virtually non-negotiable value. Gold plays this same idealized role for today's hoarders. However irrationally, they presume that gold will always have a value that bestows power on those who hold and hoard it. They want something whose value can't be manipulated by speculators, sharp traders or governments. In their minds, gold has a value that isn't determined by markets, that trumps any other potential commodity. They expect to be able to buy whatever they need or want with gold, no matter what the conditions, and they probably expect to be able to dictate the price they'd pay as well. In the past, powerful people upheld the gold standard because they wanted their inferiors to pay them in gold, so they could pay their creditors in the same coin. They acted on the presumption that gold's value, unlike that of fiat money, was unchanging, since gold determined what everything else was worth. It's that latter impulse, I suspect, that drives today's gold bugs. Their hope is that gold is market-proof, or that markets will only move its value upward.

In closing, Frank notes that both gold and silver dropped significantly in price immediately after the announcement of Osama bin Laden's death. He explains this as a vote of confidence in the Obama administration, the President having proven that he "could act as effectively and ruthlessly as any other president" and thus disproven so many conspiracy theories about his allegedly anti-American agenda. Frank also notes that "there were all sorts of technical reasons for silver's plunge, of course," and I'd like to stick with those. I haven't checked how precious-metal values have changed since the July Harper's went to press, but I wouldn't be surprised if they've gone up with growing fears of a "double dip" recession. Obama has hardly benefited from Osama's demise, and fewer people have given up their suspicions than Frank would like to believe. It'd take more than bagging the world's most wanted terrorist in this age of bad faith to win the doubters over. Nevertheless, there seems to be a link between that existential doubt or distrust, not just in politicians but in all institutions, and the craze for precious metals. "We buy [gold] because of our inner convictions about human behavior, not because it's really useful or something," Frank writes. It may be, however, that our convictions about human behavior actually determine gold's usefulness, as long as speculators and hoarders assume that everybody wants it. Frank himself is satisfied that gold will lose its power when fewer people fear the collapse of civilization, but it may take an actual collapse of civilization to disabuse people of their faith in gold's eternal value. The people who consciously or unconsciously hope for such a collapse might then regret their investments.