Today's comment is by John Pugsley, Chairman of The Sovereign Society, and long-time hard-money advocate.

Dear A-Letter Reader:

The 32nd annual New Orleans Investment Conference is underway. Launched by James U. Blanchard III shortly after he founded the National Committee to Legalize Gold in the early 1970s, it has been an annual pilgrimage for those who believe in sound money.

Throughout the early 1970s, Jim fought, often unconventionally, for the right of Americans to own gold. For example, he arranged for a biplane to tow a "Legalize Gold" banner over President Nixon's 1973 inauguration. He held press conferences around the country at which he would brandish a then-illegal two-ounce gold bar and publicly defy the U.S. Treasury to throw him in jail.

 In 1974, thanks in great part to Jim Blanchard's relentless efforts, gold was legalized. Although "gold" has been taken out of the conference name, it is still a main theme of the New Orleans Investment conference. Well as should be, for once again the Democrats have de-facto control of the American checkbook, and that portends to even darker days for the U.S. dollar.

Gold has served as money in all great civilizations throughout history, first being coined more than 2,500 years ago in Mesopotamia. It's the history of gold in the 20th century, however, that figures in our lives.

In the early 1930s, between US$90 billion and US$125 billion of bonds held in the U.S. promised to pay in gold so that their holders should not be cheated in case of currency depreciation. One of the issuers of such bonds was the Iron Mountain Railroad (later part of the Missouri Pacific). In 1902 it floated a 30-year bond issue with the promise to repay the bonds when due in U. S. gold coin "of the present standard of weight and fineness." In May 1933 when the bonds were due, Manhattan's Bankers Trust, owner of the bonds, demanded payment in gold.

The railroad refused and Bankers Trust sued. In a final word, federal Judge Charles Breckenridge Faris pointed out that: 1) If the gold clause were held binding, 1,693 devalued dollars would have to be paid on each $1,000 bond. 2) "It would bankrupt well nigh every railroad, every municipality . . . and well nigh every State in the union." 3) Congress alone has power to say what shall be used as money. Concluded Judge Faris: "And so it follows that ... the gold clause is therefore unenforceable." The very thing lenders feared had happened: they had been cheated by currency depreciation.

This monetary fraud began in 1914, when Congress created The Federal Reserve and gave the Fed unlimited ability to issue dollars. At the time dollars still carried the statement "PAYABLE TO THE BEARER IN GOLD COIN".

A vast expansion of the currency ensued, leading to the boom of the "roaring twenties", and ultimately to the crash of 1929. Dollar holders, fearing banks were in trouble, began demanding the gold that they had been promised. The banks didn't have enough gold, and the bankruptcies began.

Democrats to the rescue! In 1933, President Roosevelt declared a bank holiday, suspended gold payments, and made it illegal for Americans to own or make contracts in gold. Simultaneously, Congress passed legislation knocking the gold clause out of every U. S. bond, public and private. It was this legislation that Judge Feris upheld.
Thanks to Jim Blanchard and other stalwarts, you and I can legally own and make contracts in gold. The question is, should we? The answer is, absolutely.

Gold is a real, tangible good. It can't be created out of thin air or with the stroke of a computer key, as dollars are created. Relative to the U.S. dollar, gold is not just a bargain, it is the sovereign individual's ultimate hedge against fiat money. We should own it as a commodity, own the shares of companies that produce it, and find ways to trade it and make our contracts in it.

Bernard Baruch said it a century ago, "Gold has worked down from Alexander's time. When something holds good for two thousand years you can have confidence it can be trusted."

He would never say that about the U.S. dollar.

JOHN PUGSLEY, Chairman
on behalf of The Sovereign Society

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