[A-List] On the Role of Gold

[Anne Williamson]

On the Role of Gold

by Otto Scott

Although The Wall Street Journal lists gold as a commodity, and scorns the
concept of gold as a currency, it continues to play its ancient role as the
only true standard of value in times of war or crisis. These are presumably
times of peace, but in fact we are riddled with cultural wars that continue
to evoke murders, bombings, riots, and rebellions on the international
stage.

A new level in this global conflict was reached fairly recently when Stuart
Eizenstat, a former senior Carter Administration official and until recently
an Undersecretary of Commerce,(1) issued a report accusing Swiss banks of
accepting "gold pulled from Holocaust victim's teeth intermingled with
central bank gold" during World War II, and later refused to return the
deposits of Holocaust victims to their heirs.

This Report escalated a campaign against Swiss banks led by former Fed
Chairman Paul Volker, who has been appointed head of an Independent
Committee of Eminent Persons, to audit the records of Swiss banks for the
deposits of Holocaust victims. Lawsuits claiming very large sums have been
filed, and the air is thick with charges hurled by the headline-seeking
Senator Alfonse D'Amato, indignant denials fading into apologetic offers
from the Swiss government, and the abrupt dimming of Switzerland former
reputation as a tiny, remarkable democracy, into a nation and system
motivated by unconscionable greed.

Nazi gold, in other words, is not unimportant even after 57 years. All gold,
in fact, remains immensely valuable in the views of all governments. That is
why every central bank of any significance buys and holds gold in reserve in
a world of almost universal paper money.

The reason for this is not mysterious. History tells us that only gold
retains its value during wars and upheavals, changes of empires and
governments, and times of crisis. Although now officially held to be of only
industrial value, gold is the oldest and most respected currency in the
world and the only one respected when national paper monies lose value.
Islam, the Orient, and citizens everywhere familiar with the uncertainties
of governments such as in Italy, France, Asia, Africa, central Europe, and
Latin America, often bank gold in private repositories.

Some indication that such times loom today can be gained by the recent
effort of Chancellor Helmut Kohl to improve Germany ability to help create a
common European currency. This program, which instead of uniting has greatly
divided Europeans for several years, and is encountering continuing
difficulties. Its main sponsors France and Germany established certain
requirements before the nations involved can weld their currencies and issue
a new common currency. These requirements now embarrass both governments.
Their unemployment statistics are insupportably high, and their debts are
beyond the minimums established for entry. Chancellor Kohl wanted to alter
his nation economic statistics (though not circumstances) by raising the
value of the 95 million troy ounces of gold held in the reserves of his
nation's central bank (3) to its market price.

If the bankers had agreed, that would have allowed Kohl not only to balance
his annual budget, but would have made several billion marks available to
fund his entry into the European common currency as well as launch efforts
to both save his welfare state and to placate his unemployed with new
programs. Although it is unlikely that the Chancellor thought about it, the
fact is that his proposed solution exactly paralleled the one chosen by
President Franklin Roosevelt when he first took office in 1933. The new
president first persuaded Congress to enact enabling legislation granting
his office the power to demand all gold held in private hands under pains of
fines or imprisonment or both, and then raised the price of gold. That
launched an inflation that enabled the White House to launch its
governmental employment programs, and become the idol of the poor and
unemployed. Helmut Kohl was not as fortunate as President Roosevelt. Germany
central bank, irretrievably scarred by memories of not only the inflation of
the early twenties but also by the worthless paper left to the people by
Hitler, brusquely refused to cooperate in changing the official price of
gold in reserve to the far higher price of gold in the marketplace.

In the meantime, however, the frugal Swiss, under intense bombardment by the
American Jewish community, "released" some of their reserve gold and raised
it to the market price, in order to fund a special effort to locate and
repay survivors of the Holocaust from the deposits they made during the
thirties and forties if they (or their heirs) can be discovered.

It is interesting to note that both steps one refused and one accepted
treated gold as currency by cashing it in the marketplace. That is as close
to a return to a gold standard as any German administration has come in fact
since its recovery in post World War II. Switzerland, of course, has always
been on a gold standard in the sense established after World War I. It will
of course be recalled that at one time the international financial community
relied upon a real gold standard. Paper currencies were issued, backed by
gold. Citizens could present paper money to banks and receive gold coin in
exchange. (The West in the U.S. used silver dollars.) Raw gold could be
turned in to the Treasury, which would mint it and return it to the citizen.
All that ended in World War I.

In the twenties the franc, dollar, and pound were backed by gold and
therefore had a relatively stable value. (That is one of the reasons why
such a heavy exchange of property took place in Germany in the early
twenties, when those citizens who had access to "hard" money were able to
buy property at bargain prices from people beggared by inflation.) This was
a factor in the rise of Hitler.

In the twenties, however, citizens no longer had access to gold through an
exchange of paper currency with the banks. As the twenties extended, the
post-World War I depression was temporarily lifted by international loans
and a credit inflation through the introduction of installment payments for
both tangible (farms, houses, and goods) and intangible property (stocks and
bonds), which created production based on promises to pay. These promises
collapsed in late 1929 with the declines in the stock exchanges and losses
in many banks. When payments were not met, bankruptcies almost halted
production; jobs vanished and a global economic crisis occurred. The crisis
was especially severe in Germany when all banks failed.

The German debacle meant that World War I reparations, paid in the twenties
by Germany from international loans, would cease. That brought a group of
international bankers together in 1930 to create the world's first
international bank. It was named the Bank for International Settlements. It
originally consisted of the central banks of Belgium, France, Germany, Great
Britain, Italy, and some commercial banks from the U.S. and Japan. In 1931
the Federal Reserve began active participation in the BIS, and soon more
than two-thirds of the BIS funds in America were held by the Federal
Reserve.

All this resulted in the world first group of bankers operating
internationally independent of their governments. Only the German directors
were, in this coalition, entirely controlled by their governments; later an
exception of great value to Hitler. The charter of the new bank, approved by
the various governments, certified its immunity from "expropriation,
requisitions, seizure, confiscation, prohibition, or other restrictions of
gold or currency export or import, or any other similar measures."(4)

The role of gold was central in the creation of the BIS. The new bank was
authorized to "arrange with central banks to have gold earmarked for their
account and transferable on their order, to open accounts through which
central banks could transfer their assets from one currency to another and
to take such measures as the Board might think advisable within the limits
of the powers granted. . . . Therefore the BIS was ready to lend gold
without delay. . ."(5) That meant that gold transfers from one central bank
to another could be made quite swiftly and did not have to lag behind
physical transfers.

As the thirties extended and Hitler came into power, the situation of
Switzerland worsened. Gestapo agents were especially interested in Jewish
properties and holdings, and began to make demands that Jewish deposits in
Swiss banks be disclosed to German authorities. In 1935, as a measure to
protect German Jews, Swiss banks introduced secret numbered accounts. These
enabled the Swiss banks to prove that depositors were not identified by
name, and that therefore their identities could not be disclosed.

That practice amounted to an expansion of Switzerland's ancient role as the
protector of foreign funds deposited in Swiss banks safe from the pressures
of tyrannical governments. This tradition remains a very important one.
Switzerland's name is almost synonymous with secret accounts. It has always
refused to open its books for investigation by foreign police in pursuit of
refugees either political or financial from other countries.

This has been a cause of increasing irritation to American authorities ever
since World War II, who have watched the steady increase of international
depositors into Swiss banks. Washington's frustration with Switzerland has
been deepened by the fact that its influence in other nations has, since
World War II and the end of the Cold War, grown enormous. Both nations have,
in fact, grown increasingly apart in recent years. Their differences are
economic, political, and moral. The United States is in the midst of what
President Nixon launched and named a Drug War. This effort has led to the
expansion of American police authority to global levels. (6) The Swiss
believe that an effort to escape taxes is human and understandable, and not
basically criminal. In the U.S., despite its former reputation for
individualism, paying taxes until recent expansions has been considered the
duty of every good person.

An equal conflict consists between the U.S. and Switzerland regarding
banking rules. In recent years the Drug War, and the huge sums it entails,
has led Washington to enact laws not only opening bank records of all
transactions to the government, but rules that force banks to inform the
authorities of any transaction beyond the ordinary. (7) Switzerland's bank
secrecy, created after the Vienna Conference of 1820 led by Metternich, was
deliberately encouraged by the leading nations of Europe as an escape from
the confiscations of the type installed by the briefly-lived Napoleonic
Empire. (8)

World War II did nothing to lessen the Swiss belief that the inviolability
of its banks was crucial to its survival though that survival was by no
means certain. "After Germany invaded Poland in September 1939, the Swiss
army mobilized up to ten percent of the population and throughout the war
went through long periods when it expected imminent attack from the Germans.
That Hitler wanted Switzerland as he wanted Europe for the rest of his
thousand-year Reich is well documented. As Gerard Weinberg writes in his
history of the Second World War:

At 1:35 a.m. on June 25, 1940, the armistice between Germany and France went
into effect; a few hours later orders went out of the high command of the
German army to prepare an invasion of Switzerland. . . .The plan was to
crush Swiss resistance quickly. . . . It was never launched as more
important projects came to the fore in German planning. The end of
Switzerland, that pimple on the face of Europe as Hitler described it in
August 1942, would have to wait until Germany had defeated her European
enemies. (9)

"The estimate among Hitler's generals was that at least eighteen divisions
were needed to dislodge the Swiss from their redoubts, and after the failure
to defeat Britain and the Soviet Union, the cost of a Swiss invasion became
a mountain too far." (10)

During the war the BIS became the center of international trades even
between the warring powers. Its directors were well acquainted and
congenial, and shared some interesting ties. Per Jacobson, economic director
oft he bank,(11) was the brother-in-law of Sir Archibald Nye, Vice Chief of
the Imperial General Staff for the British Army. Meanwhile, President
Roosevelt froze the gold holdings of most of the belligerent nations in Fort
Knox. At the same time, the governors of nearly all the European banks from
France, Hungary, Romania, Italy, Spain, and Portugal as well as Germany were
regular visitors to the BIS in Basle.

Swiss National Bank vaults were, during this period, open to all trading
nations. And as a neutral, Switzerland traded with all governments. If
Germany wanted to sell gold for grain or fuel, the Swiss National Bank moved
the gold from Germany's share in the National Vault to the section reserved
for Portugal's gold. Meanwhile, while serving Germany's international needs,
Switzerland was also dependent on Germany for its fuel including coal and
oil and most of its food. The tiny nation is, after all, landlocked, and
Germany controlled all the land of Europe around it. Switzerland only direct
trading route by sea is down the Rhine river northward to the North Sea also
controlled by Germany. Switzerland was technically independent, but in
reality its freedom was precarious. Its only window of free commerce was a
strip of territory from Geneva to Vichy France, which was severed when the
Germans occupied all of France.

Yet Switzerland held some strong cards. If forced to fight, it could block
access to its north-south tunnels whose rail lines would have cut Germany's
access to its forces in Italy. An invasion would also have ended the
activities of the BIS bank, through which Germany traded gold with the world
beyond (and inside) Europe. The role of gold in World War II was, obviously
crucial. In March 1938, when Hitler marched into Vienna, "much of the gold
of Austria was looted and packed into vaults controlled by the BIS. This
gold was immediately credited to the Reichsbank accounts."

In March 1939 the Nazis invaded Czechoslovakia. Storm troopers, holding the
bankers at gunpoint, ordered them to transfer their nation's national store
of gold, which they had placed in a BIS account in the central bank of
England, transferred to the Reichsbank account. Jacobson afterward said that
the BIS learned only later that this transfer was ordered at gunpoint, but
this statement can be disregarded as pro forma. The facts were that the
conquest of a small nation by a larger one is historically accompanied by a
looting of assets, and Jacobson's added comment that "The Czechs never held
this against the BIS" can be taken as far more significant. Losers in a war
seldom expect the world to be shocked.

Neither was trading with Germany unique in World War II. Spain, for
instance, cooperated with Nazi Germany, although Franco did manage to obtain
the freedom from German concentration camps for thousands of Jews descended
from Sephardic families, whom he had returned to Spain for the first time in
centuries. (12) The Irish, who had no such ancient ties, not only traded
with the Nazis but gave their submarines refuge at a time when their toll of
Allied shipping was deadly. Sweden, which benefited economically from
trading with both sides in World Wars I and II, allowed the German army to
cross Sweden without protest as part of this arrangement.

There is no question that fortunes in trading with and for Germany were also
achieved by businessmen and institutions in Portugal as well as Spain, in
some U.S. banking circles and some large corporations as well as in Vichy
France, Portugal, and Sweden. All these nations, (13) however, also rendered
services to the Allies without which the war might well have tipped the
German way. Switzerland, as not only the Dulles family but also Winston
Churchill pointed out, provided an invaluable listening post that kept the
Allies apprised of events, policies, and even plans inside the Reich.

"Switzerland also protected its own 18,000 Jewish citizens completely,
unlike France, which obediently deported thousands to Germany. Switzerland
did more: it accepted more Jewish refugees, in terms of percentage of
population, than any other country. And Switzerland was and is a very small
country. Its population is only 7 million now, and was probably less then.
More than 14,000 Jews escaped Germany to Switzerland during the same period
that 55,000 left for the United States and 15,000 went to France . . .

[Switzerland also] accepted 50,000 French and Polish soldiers. In 1944 the
Swiss National Assembly voted to admit up to 14,000 Jews who were trapped in
Hungary and were in the charge of Swedish diplomat Wallenberg. But Eichmann
allowed only 1,400 to leave." (14)

To put this into perspective, "the United States accepted only 21,000 Jewish
refugees during the war."(15) In fact, the United States, which
retroactively assumes that its role in World War II was purely heroic,
seldom admits that some of its bankers not only traded with the Nazis
through the BIS all during the war, but that the entire nation remained
aloof when Britain fought Nazi Germany alone for two years. Even then, we
did not declare war against Hitler: he declared war against us. Otherwise we
might have fought only against Japan.

These points are made not to review the war, in which an estimated 40
million persons died and more lost their homes, possessions, and relatives,
but to broaden the frame of reference beyond the fates of the bank deposits
of only some sufferers in the largest of all the world many tragedies. One
later tragedy was surely the Soviet-inspired Cold War, which was
unnecessary, frightening, and divisive for over a generation. In that long
and expensive continuation of war by other means, the role of gold continued
to be central. The central banks continued to amass and hold massive gold
reserves, but all the governments functioned on paper money alone in the
postwar world. From the end of World War II until 1971, the world functioned
with the United States pledge to buy gold at $35 an ounce, and to thereby
maintain a dollar standard by which all other currencies would be measured
in the international marketplace.

In 1971, however, the Central Bank of France began to use its accumulated
dollars to order gold from the U.S. Treasury in immense quantities. The gold
reserves in Fort Knox began to fade like summer snowballs. The dollar was
falling, imports began to soar and President Nixon grew alarmed. On August
15, 1971 he went on the air to announce a 10 percent Job Development Credit
for investments in new equipment, a 7 percent excise tax on automobiles to
assist Detroit, a small tax break for individuals, a $4.7 billion cut in
federal spending, an additional 10 percent tax on imported goods a freeze on
wages and prices for 90 days and a temporary suspension of the
convertibility of the dollar into gold." (emphasis added.) (17)

Only specialists seemed to grasp the importance of the end of the
gold-backed dollar. It meant that from the 15th of August 1971 through
today, the dollar has had nothing behind it but the promise of politicians
and the printing press. The media in 1971, as economically feckless then as
now,18 seemed to consider a "floating dollar" as they labeled it simply
another arcane measure of importance mainly to bankers and international
speculators.

In reality it meant that a world currency was released to float as a balloon
without limits, without roots, without stability, as high as the credulity
of the world would carry it. One result was the release of a flood of
dollars that washed everywhere. The world eagerly accepted those dollars,
because the memories of the immense power achieved by World War II America
had become imbedded in the mind of the globe. The legend of the dollar and
the wealth of the U.S. dazzled the world long after the dollar became simply
another paper currency.

One result was that desperate people everywhere scrambled to obtain dollars
that seemed to be safety nets from untrustworthy governments. Dollars
"floated" abroad through foreign "aid" programs, through loans to foreign
businesses, to U.S. investments abroad, and from millions of prosperous
American tourists who seemed to be visitors from a remote earthly paradise.

The Cold War made this appear a reasonable and even necessary situation. The
media discussed "Eurodollars" as though they were somehow separate from the
dollars used at home, on the theory that despite the fact that they issued
from our Treasury printing presses, they were somehow different. In effect,
the U.S. internationalized its welfare state. American dollars rained upon
virtually every nation in the world in an effort to prevail in the Cold War,
even as they enlarged our welfare rolls to maintain domestic political
stability. This raised so attractive a lure to the world's poor that our
borders were besieged even while our guards were withdrawn or weakened by
the Courts. As in previous periods of hysterical inflation when paper money
appeared to replace gold, from the history of China, the time of John Law in
France, and the Tulip Craze in Holland, the laws of economic gravity
appeared to be repealed.

In 1975, a few years after President Nixon's amazing economic recklessness,
(19) the U.S. Government restored America right to own and trade in gold.
Legal gold returned for collectors. As the international price of the paper
dollar declined, the international price of physical gold rose. Greenspan,
chairman of the Federal Reserve, a former follower of Ayn Rand, regards gold
as a measure of the "strength" of the dollar. Since the purchasing value of
today's dollar is roughly equal to a nickel in 1969, this does not mean
much.

Meanwhile President Reagan, elected after President Carter watched the
official U.S. interest rates rise to 20 percent and inflation soar, slowed
official inflation by slowing the Treasury's printing presses. He
accomplished this, however, by switching the Treasury presses to bond
issues. These borrowings, slated to be repaid in the future, met with
seemingly miraculous success in the international financial world. They
crowd the vaults of the central bank of Japan and many other nations, as
well as the private holdings of tens of millions of patriotic Americans.
Unfortunately, they are all payable in dollars. What President Reagan
accomplished was to halt the retail production of dollars, in exchange for
wholesale borrowings.

One result was that foreign nations could hardly refuse to subscribe to
successive new bond issues by Washington, lest such a refusal precipitate a
drop in the price of holdings already in their possession. Sales of these
holdings may do the same. Such runs could bring down the great global empire
of paper dollars, which every government lists as assets.

This situation has long since alarmed the central banks of Europe. That is
the reason for the European drive toward a common European "Euro" currency
to replace the dollar. The plan makes it clear that Western Europe does not
want to be inside the house that Washington built when the roof falls. This
has led to a drive in both European and American financial circles to
industrialize the Orient, through a multitude of joint ventures, to avoid
being caught in a global collapse. Meanwhile, every financial center is
neck-deep in paper currency except for Switzerland.

Switzerland alone has a gold-backed currency and bank secrecy. The Swiss
franc is the only existing alternative to fiat money floating everywhere
else, whose purchasers (and depositors) represent very conservative
investors. That is the reason that Europe led by France and Germany has been
attempting to put together a new global financial system that will continue
the welfare state that is only possible with paper money and inflation. Such
a system cannot succeed indefinitely of course. It might last as long as the
tenure of our present rulers and that is all that most rulers can conceive.

But Switzerland, with its real currency, is an alternative and reachable
system. As it stands, outside NATO and outside GATT and outside the new Euro
plans conceived in Berlin, Paris and Brussels, (20) it remains in silent
competition to a New World Order that cannot be ignored. It is in that
context that the campaign on behalf of Holocaust victims and their deposits
assumes an unexpected and unanticipated, but very timely, global importance.
That is why Washington has taken the rare step of supporting a minority
campaign by threatening to freeze Swiss assets in the U.S. unless its banks
placate their critics. Switzerland cannot, in other words, be allowed to
remain outside the Club. That is why the Swiss are understandably alarmed,
because bankers rely upon reputations for honesty and fairness and a
campaign that attacks Swiss banks on moral issues can be deeply injurious.

Therefore, the overall role of gold in the world economy today is even more
important than ever before as a growing threat to the rulers of a paper
empire.

NOTES

1. And now an Undersecretary of State.
2. It is interesting that there is also talk of a gold coin: the écu.
3. As of 1995, in World Almanac, 1997.
4. Trading with the Enemy: The Whole Story by Ron Holland and Rachel
Murdock, Independence Press, a division of Offshore Seminars, P.O. Box 1201,
Skyland, NC, 28776.
5. Ibid.
6. See: Cops Across Borders: The Internationalization of U.S. Criminal Law
Enforcement, by Ethan A. Nadelman, The Pennsylvania State University Press,
University Park, Pennsylvania, 1993, Passim.
7. In recent years Swiss banks have also added regulations against accepting
money "laundered" from criminal activities and have instituted checks on the
backgrounds of depositors.
8. Which so closely resemble the even shorter reign of Hitler over Europe.
9. Going for the Gold by Matthew Stevenson, The American Spectator, May
1997, p. 26.
10. Ibid.
11. Situated in Basle.
12. Giving rise to a rumor that Franco himself was descended from a
Sephardic Jewish family on the maternal side.
13. Except France as a nation.
14. The American Spectator, op. cit.
15. The Abandonment of the Jews: America and the Holocaust, 1941-45, by
Daniel S. Wyman.
16. WWII has been termed "The Four Trillion Dollar War that Cost 40 Million
Lives," although the overall cost in resources and property cannot be
accurately ascertained. Civilian casualties can only be estimated; military
statistics are more precise. Forty million is compiled from The World
Almanac, The Encyclopedia Americana (International Edition 1966), the
appendix of Battles Lost and Won, Hanson Baldwin (N.Y. 1966), the overall
cited from A World in Flames: A History of World War II by M.B. Hoyle,
Atheneum, N.Y. 1970, p. 323.
17. Nixon: The Triumph of a Politician, 1962-72, by Stephen E. Ambrose,
Simon and Shuster, N.Y., 1989, pp. 458,459.
18. Economics are not, apparently, taught in schools of journalism. Even the
news staff of The Wall Street Journal learns on the job, which is one reason
for its uneven market coverage. Some do not learn quickly or well.
19. It's doubtful if he ever realized the full extent of his folly: a
lifelong pursuit of political office did not leave much time for true
self-education or deep reflection.
20. And perhaps London.



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