Golden slumbers

If you’ve ever looked at a St. Gaudens double eagle, you understand the allure of gold. Beautiful as it is, though, gold is a really bad thing to base your monetary system on.

Augustus St. Gaudens (1848-1907), was one of the premier artists of the Beaux-Arts generation whose works include the monument to Robert Gould Shaw and the 54th Massachusetts regiment that stands on the Boston Common. He designed the coin at the request of president Theodore Roosevelt, who wrote to his Treasury secretary,”I think the state of our coinage is artistically of atrocious hideousness. Would it be possible, without asking permission of Congress, to employ a man like Saint-Gaudens to give us a coinage which would have some beauty?”

double eagleWell, St. Gaudens certainly did. The St. Gaudens double eagle, with its figure of Liberty striding in the morning sun, is a remarkable piece of numismatic art. The coin was 90% gold and 10% copper — pure gold is too soft for coinage meant to be handled by the public — and weighed nearly an ounce. Its face value was $20.

At today’s prices, discounting for the copper, a double eagle would be worth about $944. Just as a point of reference, $20 in greenbacks from 1907 would be worth $500, according to this handy inflation calculator. 

Those who sigh for the days of hard money should sigh for beautiful coinage instead. In the first place, the free market had very little to do with the gold standard: The government set the price of gold. And from 1900 through 1933, you could always cash in a $20 bill for exactly one double eagle, because that’s the price the government set. (The government raised the price to $35 during the Depression, effectively inflating the currency).

Furthermore, the supply of gold wasn’t static, either. The government could add or decrease its gold reserves through buying it on the open market, just as the Federal Reserve can now. Big gold strikes, such as in California and Alaska, could goose the gold supply and push up inflation. And one reason for the Crash of 1857 (who can forget that?) was the sinking of the S.S. Central America, which sent 30,000 pounds of gold to the bottom of the ocean.

Being on the gold standard didn’t shield the economy from financial crises: In 1907, the same year the St. Gaudens double eagle made its debut, Wall Street had one of its most severe financial meltdowns — the “Rich Man’s Panic,” which was alleviated only by J.P. Morgan strong-arming the wealthiest men in the nation to be the lenders of last resort. The stock market fell nearly 50% in just three weeks. The experience in 1907 led to the creation of the Federal Reserve in 1913.

Finally, there’s just not enough gold in the world to go back to the gold standard. There are about 170,000 metric tons of gold in the world, according to the World Gold Council. That’s about 5.5 billion troy ounces, or $5.8 trillion. The U.S. economy is about $16 trillion — and we don’t own all the gold in the world. Either the price of gold would have to explode, or the economy would have to contract. And even then, we’d be at the mercy of gold producers in Russia and South Africa for our money supply.

I don’t have a particular opinion on the future price of gold, although it’s still above its average price of about $500 an ounce since 1974, when President Gerald Ford lifted all restrictions on the price of gold. I do think gold coins are pretty, though, and if you want to own gold, that might be the best reason.

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