The Buck Starts Here

Money obeys the rules of math, but math does not rule money. When it comes to creating and sustaining faith in a currency, the principles of narrative reign supreme. Like great characters, great currencies develop. The dollar faltered for more than 100 years after its founding. It teetered into the 20th century, then much like an adolescent on the verge of adulthood, matured and regressed in equal measure until, by the middle of the same century, it was ready to rescue the franc, the lira, the mark, the pound and the yen.

Heroes often discard logic and reason in favor of fury and passion; likewise, the impulses that motivated the greatest character ever invented. Molded from farmland, flesh, fish, forests, sugar and slaves, the dollar was and always would be synonymous with the American spirit. It epitomized the vision of Alexander Hamilton, Andrew Jackson, Woodrow Wilson, Franklin Delano Roosevelt, Richard Nixon and Ronald Reagan. Nothing would surpass it.

Gold tried to keep the dollar in check. And there would be those who would remain loyal to yellow metal, those who could not see that it, too, was just another myth. But by the latter half of the 19th century, the outlines of a more nuanced philosophy of money had begun to emerge in Europe, personified in the figure of the haute financier, from whose like would descend the modern derivatives trader, financial engineer, leveraged buyout artist and hedge fund billionaire.

The financier’s assets were not hoarded in a hidden vault, nor locked in any single form. On the contrary, the financier’s money was fluid. When Otto von Bismarck and Napoleon III disagreed about the fate of Austria, the haute financiers suggested they might handle the problem by brokering the sale of Luxembourg to France. Which is to say that for these men, money was not only credit and debt, but art and politics. They would have understood the modern neoliberal dollarization of the world, in which the all- pervasive spirit of money inhabits every blade of grass, every ounce of mineral, gallon of water and patented strand of genetically modified DNA. For the financier, that old fatal choice — gold or not gold — was a primitive relic. Money was the opposite of either/or.

America was the first sovereign state to make the haute financier’s worldview official. When Woodrow Wilson signed the Federal Reserve Act on Christmas Eve 1913, the dollar became a Federal Reserve note — neither paper nor gold, yet both. For a long time afterward, it would be impossible to say with precision what the dollar was and what it was not. Instead of either/or, the dollar had become both/and.

The first law of logic is the identity principle, which states that everything must equal itself: A equals A, a rose is a rose is a rose. From Aristotle to Zeno, philosophers had tested the limits of this proposition, all to no avail. Then came Woodrow Wilson and a Federal Reserve note that was and was not the same thing at the same time, a dollar with an identity that did not equal itself, a literary dollar, destined to become the most powerful thing on earth.

In rhetoric, the technical name for terminal doubt is aporia. This condition of undecidability, as impossible to parse as it may have been for philosophers, logicians, goldloving conquistadors and members of Congress, had been a longstanding cliché of literature. Some of the most renowned fictional figures present equivocal traits, for the simple reason that aporia gives characters depth and sophistication. That’s why the history of fiction presents one conflicted protagonist after another, protagonists who conceal hypocrisy, hide secrets and self- destruct. Think of Arthur Dimmesdale in The Scarlet Letter, Jay Gatsby in The Great Gatsby, Satan in Paradise Lost, Anna Karenina or Emma Bovary. Iago could well have been speaking for Woodrow Wilson’s Federal Reserve note when he said, “I am not what I am.” Hamlet, most famously, could not decide. In fiction, ambiguity and paradox qualify as achievements. And now the same could be said for the fiction that is money.

Woodrow Wilson signed into law a goldbacked dollar that was not really backed by gold. The paradox went well with a Federal Reserve system constructed in such a way that the federal government would be both involved and not involved in the money supply. Only then could banks be both dependent on and independent of central banking policies.

Of course, this raft of inconsistencies did not appear out of nowhere, fully formed. It had been the outcome of an epic struggle, centuries in the making.

The Origin Story

The American dollar was the brainchild of Alexander Hamilton, who received his first lesson in the undecidability of money when he was 11. One morning, the boy walked out the door of his Caribbean shack and instead of going to school headed to the docks. There he found bales of cotton, barrels of molasses, blocks of brown sugar, bolts of cloth, casks of rum, thousand-pound ropes of tobacco, precious metal coins of all shapes and sizes, enslaved black men and women yoked and harnessed, and business offices full of white men securitizing debt, signing letters of credit, crafting certificates of insurance and drafting statements of limited liability.

As he stood on a wharf in the West Indies, the boy could see all the plots and characters of money. The boy understood that any of the commodities of transatlantic trade could be substituted one for the other — or translated into Spanish reales, Portuguese escudos, Prussian thalers, English guineas, bills of exchange, deeds of maritime indemnification or written promises to deliver or receive any or all of the above in whole or in part at a date, place and time to be determined by endless other options and expirations. Each element of trade was materially different, and each was possessed by its own set of invisible daimons, which determined its price. And the boy saw that it was just this slipperiness of money that gave the small commercial port of Nevis its reach and strength.

What exactly was money? Alexander Hamilton saw that it was impossible to decide. He talked his way into an apprenticeship as a clerk at the import- export firm of expatriate New York traders David Beekman and Nicholas Cruger. The mercantile house exchanged a wide variety of commodities, which gave Hamilton the opportunity to observe fluctuating markets in everything from timber to lard, iron, rope, cattle and slaves. He soon proved himself an adept at the art of releasing metaphors from one restraint and enclosing them within another. That is, he showed a talent for making money, a gift too great to waste away in Nevis.

When hurricanes devastated the islands six years later, a few of the Caribbean’s richest merchants did the kid a favor and bought him a one-way ticket to the mainland. At 17, he landed in Boston, headed south, and not long thereafter found himself wandering through the port of New York.

Before he became the first secretary of the Treasury and the new republic’s greatest banker, Hamilton was a revolutionary, a composer of George Washington’s correspondence and one of the best lawyers in Manhattan. His hours-long streams of verbiage could hold a courtroom in thrall, and his feverish renditions convinced jury after jury. At the Constitutional Convention, William Pierce of Georgia compared the brilliance of his language to that of the great English novelist Laurence Sterne.

As a matter of course, Biddle the literary aesthete was elected to the Pennsylvania General Assembly, where in his first public address he praised the national bank. When the Bank of the United States was rechartered in 1816, President James Monroe appointed Biddle as a director. The following year, The Portfolio published a short story by James Hall, yet another writer-banker (the author of 10 books, Hall also became the state treasurer of Illinois). The story was called “The Adventures of a One Dollar Note.” “Be not surprised,” the newly rechartered American dollar declares, “that in this age of wonders, you behold a bank note endowed with the powers of motion and speech.”

Personification of money was nothing new, but Jacksonian America proved to be a dangerous time for currency that spoke like a gentleman. When the president of the Second Bank of the United States resigned in 1822, Nicholas Biddle became its president, and soon attracted the fury of another president.

It wasn’t supposed to be that way. Mortal conflict was the last thing on Biddle’s mind when he began to lay out plans to make the bank’s headquarters in Philadelphia a replica of the Parthenon. That way, as he ruminated over the arcane structures Alexander Hamilton had come up with to collateralize debt, his thoughts might never stray too far from the achievement of his idols, those who held court in the agora, debating in high rhetorical style the nature of justice, truth and beauty.

A great deal of study has been devoted to the plots and characters of the bank war. Some say that Jackson versus Biddle was a personification of South versus North, others that their antagonistic spirits embodied Main Street versus Wall Street, rural versus urban, populists versus coastal elites or America First versus globalism. But in the end it wasn’t much of a contest, as Jackson used his executive power to remove all federal deposits from the central bank, in one fell swoop eliminating one- fifth of the bank’s capital. Then Jackson distributed the 10 million federal dollars among his friends who owned their own banks.

Hamilton understood that American money would have to fit the stubborn inconsistencies of the American temperament. In a Letter on Currency, Hamilton noted that people were “governed more by passion and prejudice” than by reason. In the sixth of The Federalist Papers, he noted the greatest threats to American independence: “rage, resentment, jealousy, avarice.” It was a prescient observation. For the next 200 years, these emotional antagonists would remain the dollar’s enemies. And Hamilton understood that the best defense against such forces would be a set of equal and opposite energies. The word he used to describe such economic jujitsu was “sympathy.”

In the winter of 1790, less than three years before the birth of his currency, Hamilton delivered his Report on Public Credit, in which he declared that every credit should have “the nicest sympathy with every other part. Wound one limb and the whole tree shrinks and decays.” To Robert Morris, America’s wartime finance minister, he insisted that even the ultimate antagonist, debt, “if it is not too excessive, will be to us a national blessing. It will be powerful cement of our union.”

The dollar Hamilton envisioned would be anchored in a matrix of opposed forces: foreign loans, domestic taxes, tariffs, post office revenues, and duties on coffee, tea, wine and booze. Hamilton’s amalgamation was so complicated that it was impossible for anyone to say what, in essence, a dollar was. And that was the point. The individual forces of the dollar’s psychomachia could not be undone without unraveling the entire plot.

When Washington asked, “What is to be done with our terrible debt?” Hamilton had a quick and easy answer: “Bank on it as our only available capital.” That was the terrifying beauty of aporia, and it has endured as a feature of American money ever since, incarnated in a national debt that presently exceeds $25 trillion — debt that other countries stand in line to purchase!

In 1792, Congress passed the first Coinage Act and established the United States Mint. As a matter of course, Hamilton had decided that the value of an ounce of gold would be worth 20 American dollars, an equivalence that would hold fast for almost 150 years. But Hamilton was far too clever to chain his dollar to gold and gold alone. From the outset, the dollar was not an either/or but a both/and arrangement, for the original American dollar was bimetallic: its worth could be defined by either gold or silver. It was neither one nor the other, and there was no need to choose between the two.

Uncertainty about the world and fear of the future had goaded canoe traders to create magical tokens; it had encouraged chieftains to institute marriage ritual and enforce inheritance law; it had lurked behind the violence of domestication and motivated the legal armatures of mortgages and insurance. Uncertainty had made money money. And while Hamilton had exploited that uncertainty to create the fiction that would rule the world — that is, the almighty dollar — the currency’s inherent instability would trigger a multitude of unforeseen consequences.

In the title of his 1815 book, the radical journalist William Cobbett defined what would be the great economic conflict of the 19th century: Paper Against Gold. The book’s subtitle clarifies where Cobbett stood in regard to the conflict, as the title page promised to narrate “The history and mystery of the Bank of England, of the debt, of the stocks, of the sinking fund, and of all the other tricks and contrivances carried on by the means of paper money.” Cobbett, who had initiated the work as a series of letters while in prison, began his diatribe in full- blown conspiracy mode.

Within two years, the screed had sold hundreds of thousands of copies. Clearly, the charms of ambiguity inherent in a dollar based on wide- ranging sympathies with gold, silver, credit, debt, import duties and taxes was not for everyone, and particularly not everyone in America, where a growing population of frontiersmen, boatmen, cattlemen, miners and lumberjacks preferred less ambiguous ways of approaching the world.

Jackson, Biddle and the Bank War

The legendary American frontiersmen of the early 19th century did not see their new land as a delicate play of fine forces, each held in check by another. They wanted to kill, consume and conquer, and to this end they plowed down forests, eviscerated mountains, drank rivers in a single gulp, and rained bullets on any indigenous people who dared stand in their way. It was just a matter of time before one of them would rise to the highest office in the land, and wage the first all- out attack on Hamilton’s brilliant fiction.

Andrew Jackson was that man. He drank whiskey, loved to fight, loathed bourgeois culture and felt quite comfortable massacring Creeks and Seminoles. He owned 1,000 acres, enslaved hundreds, and kept 37 sets of dueling pistols. He believed in the merit and value of utterly demolishing his enemies, be they Native Americans in the godforsaken swamps of the Florida Panhandle, Whigs in Congress, bankers from Philadelphia or any unfortunate who happened to insult him in print — and be summarily summoned to choose his weapons at dawn the next day. On his deathbed, when most mortals contemplate heaven, transcendence and forgiveness, Jackson raged that his one regret in life was not having tried his vice president, John C. Calhoun, for treason and seen him hanged.

He was the richest president America had ever known and a famously ill- tempered sonofabitch who exhibited a surprisingly unbiased and inclusive set of hatreds. A preliminary list would include aristocracy, lineage, pedigree and protocol. He detested anyone or anything with more money, power, culture or wealth than he, so naturally despised the East Coast banking elite, their ties to Old World nobility and their elaborate private protocols for paying dividends, leveraging indemnities and selling equity in their corporations.

At the time Jackson took office, Alexander Hamilton’s national bank had reached a new incarnation. The so-called Second Bank of the United States helped regulate everybody’s dollars, but shares in the bank’s corporation were held by a closed circle of grandees, a clique of snobs who revered the customs and ceremonies of what Jackson contemptuously called “titles, gratuities and exclusive privileges.” To Jackson, the Second Bank of the United States was holding the American dollar captive in outdated and stultifying forms.

He felt that this was “odious … most odious … more formidable and dangerous than the naval and military power of the enemy.” And Jackson took it personally. “The bank is trying to kill me. But I will kill it.”

Historians have traditionally described the ensuing “bank war” as a conflict of personalities — the brute politician versus the pedantic and pretentious bank president, Nicholas Biddle. And it is true that Biddle was the opposite of Jackson in every way. He graduated college at 13 and two years later collected a second degree from Princeton, where in honor of his adoration of Latin rhetoric, he was nicknamed Grammaticus. After Princeton, the prodigy’s well- to- do parents presented their teenage son with a custom-made, tailor-fitted pseudomilitary uniform with lots of shiny brass buttons. He dressed himself up and embarked upon a grand tour of Europe. Upon his return to Philadelphia, the future head of America’s central bank decided, at long last, to which of the arts and sciences he would devote his brilliance. He would be a literary man.

Magazines such as The Dial, The Atlantic and The Knickerbocker were still years away from their first issues, and only one person in America, Charles Brockden Brown, was making his living as a professional writer. Perhaps Biddle should have paid some attention to the content of Brown’s fashionable fictions, which featured nothing akin to the high rhetorical modes of Gorgias and Pericles. Brown’s tales of psychological horror presented madmen who murdered their own children, insomniac cowboys who drank panther blood and, most disconcerting of all, con men who printed and distributed counterfeit money.

Nicholas Biddle was a dandy in a barbaric land. He was a fop, an aristocrat, a conservative, a rich boy and a prig who worshipped at the altar of classical art, drama and philosophy. He readily assumed the most prestigious literary post in New York, the editorship of an urbane, upper-crust, and sophisticated magazine called The Portfolio. His name would have been forgotten to all but the scholars if not for the fact that in the first decades of the 19th century, rhetorical knowledge and literary taste were considered essential qualities for public service, which included central banking. In fact, over the course of the magazine’s 25 years of publication, The Portfolio published numerous merchants and politicians, including future president John Quincy Adams, who delivered two fables in verse — one about a fly, another about a dancing bear.

Biddle retaliated by raising interest rates and calling in loans, trying to contract the economy, induce a recession and blame it on the president. But the literary aesthete proved to be an inept politician. When American businessmen turned against him, Biddle withdrew from public life and spent the remainder of his career defending himself from million-dollar lawsuits and charges of criminal conspiracy. Meanwhile Jackson’s 32 pet banks were leveraging their sudden windfall into $150 million in new loans.

Despite Jackson’s attempts to banish the elite rhetoric of money and replace it with frontier fact, the true winner of the bank war was metaphor. Once the national bank had been obliterated and state banks took over, a liberalized set of rules and regulations allowed just about anyone to print notes on rectangular slips of paper, call them dollars and loan them out so they could increase and multiply. (Even Andrew Jackson eventually expressed some regret regarding the “general evil influence” of such unbound financial excitements. Before he left office, he declared that if anyone wanted to buy more than 320 acres of government land in the new territories, they would have to pay with gold or silver. As might have been expected, this reversal back to metal threw into even greater disarray all the state-issued “money of account” Jackson’s policies had previously inspired.)

The intensity and drama of the bank war underscored what objective observers had long perceived about American money: it was what Americans said it was. Incontrovertible evidence to this effect appeared the year after Jackson left office and the United States carved the 26th state of the union from the so-called Northwest Territory.

The Post-Biddle Dollar

Michigan’s first governor was Stevens Mason. Elected when he was all of 23, he inherited a state roughly equal in size to the kingdom of the Visigoths when Alaric sacked Rome. Unlike the hinterlands of Austria, England, France and Germany, Michigan was not inhabited by bloodthirsty barbarians, but by the Ojibwe people, who had settled where the fish were plenty and the wild rice grew. There is no count of how many natives were displaced by the influx of New Englanders, but it is clear that by 1840 just under a quarter of a million Americans had been seduced by the myth that among the ore, timber and freshwater lakes larger than the Adriatic Sea, a new sort of money was breathing fresh air. After 60,000 years of captivity to beads, shells, skulls, iron, copper, silver and gold, this money would be free.

In emulation of their hero, Andrew Jackson, hundreds of frontier bankers armed themselves with corn whiskey and caplock revolving rifles designed by a 22-year-old American manufacturing genius named Samuel Colt. Then they headed into the wilderness. The state celebrated its first birthday with the establishment of 40 new banks, one for every 2,000 of its new citizens — the equivalent of 20,000 new banks opening in California this year. The kicker was that each bank offered its own, independent dollar. In America, where self-reliance ruled as the ultimate virtue, everyone could have their own currency based on full faith and credit in themselves.

The so-called wildcat bankers of the booming American Midwest were not timid men, but their one enduring fear was that a depositor might stumble upon Cobbett’s old tirade, Paper Against Gold, and demand that his banker transform promissory notes into metal that largely did not exist. The reserve capital of the Jackson County Bank, for instance, consisted of nothing more than a halffull drawer of lead, ten-penny nails and broken glass. The bankers reasoned that the harder to get to the bank, the more hidden the hoard, the more unlikely the prospect of redemption. So the pioneers made a point of setting up shop in the most inaccessible, impossible and barren stretches of terrain, deep among the birch and maple, where the wildcats roamed.

By the middle of the 19th century, it had become clear to anyone paying attention that paper money was allegorical. These were the decades in which Laurence Oliphant’s The Autobiography of a Joint-Stock Company appeared in print, and the phrase “fictitious capital” began to pop up with some regularity in the pages of The Economist and The Morning Chronicle. A “review” of a Bank of England note appeared in Household Words, a London magazine that often featured the work of Charles Dickens. Here, the banknote was treated not as a talking oddity as it had been in the days of Nicholas Biddle and The Portfolio, but as if it were a literary masterpiece: “There is a pithy terseness in the construction of the sentences; a downright, direct, straightforward, coming to the point, which would be wisely imitated in much of the contemporaneous literature.”

The post- Jacksonian era of “free banking” began in 1837, and that year more than 200 new banks were born in the United States, each issuing its own paper. That same year, 20 New York banks went bust, and all the notes and promises they had issued became worthless. From there, things went downhill. As Michigan banks went under, Stevens Mason, the young governor, fled to New York, leaving the state with $2 million in bad debt. Fifty-five of Indiana’s 95 banks collapsed. Half of Minnesota’s “free banks” failed, along with eight out of 10 in Illinois. The excitements of free money had devolved into an unending series of panics, depressions and an unemployment rate that reached 25 percent. Not to mention 8,000 different kinds of dollars.

Texas Style

The “Texas redback” was perhaps the most ambitious and audacious failure of them all. It had been anchored in the poetic imagina84 The Milken Institute Review tion of Mirabeau Buonaparte Lamar, whose otherwise obscure biography is worth summarizing if only for the insight it provides into the greatest metaphor he ever conceived.

Born on a Georgia cotton plantation in 1798, Mirabeau and his older brother, Lucius Quintus Cincinnatus Lamar, spent long hours acquiring the gentlemanly skills of fencing and equestrianism. As the slaves sweated it out in the cotton fields, the boys whiled away their afternoons in proper spats and dark cravats, immersing themselves in the arts of painting and dramatic recitation. Given such proclivities and upbringing, it was only natural that the brothers imagined themselves knights, crusaders, troubadours and fairytale heroes. Mirabeau in particular became an incessant scribbler.

Unfortunately, Mirabeau never could figure out how to earn a living. He tried a general store and failed. He tried a newspaper and failed. When he was 34 his wife died of tuberculosis, and soon thereafter Lucius killed himself. At this point Mirabeau got on his horse and followed the setting sun. Eighthundred miles later he came across an armed insurgency.

The conflict between those who lived in what is now called the State of Texas and the rulers of the Mexican Republic had been brewing for more than a decade before 1836, when the Republic of Texas declared its independence as a sovereign state. Mirabeau Lamar now stumbled upon a scene in which terrified caravans of refugees were fleeing their homes, their only hope of survival pinned upon a ragtag “Texian” army maneuvering to escape the troops of Antonio López de Santa Anna, Mexico’s president and commander in chief, who had vowed to exact bloody revenge on the insolent upstarts who dared defy his authority. Any sane bystander would have fled the conflict zone. But Mirabeau Buonaparte Lamar had been named after a French emperor. He had trained since childhood to take his place at the roundtable. After a life of nothing much, he had at last found something.

Those who hold death in steely contempt make the best warriors, but a close second are the insane, those besotted with the romance of it all. Lamar possessed both traits. In the Battle of San Jacinto, the knight from Oconee unsheathed his saber, spurred his horse and charged into a crowd of astonished enemy to rescue two captured Texian warriors. Here was idiocy worthy of Don Quixote charging the windmill, and the act shocked everyone on both sides of the battlefield, including the two captives, who realized, belatedly, that they had been redeemed.

The act was so absurdly courageous that — Lone Star legend has it — the Mexican army, arrayed on the opposite field, stood to salute. The Battle of San Jacinto turned into the massacre of San Jacinto, a decisive victory of the Texas Revolution. General Santa Anna was captured, and Mirabeau Lamar’s epic act entered the mythology.

The mad poet rose through the ranks to become Secretary of War and, six months after San Jacinto, when a friend of Andrew Jackson’s by the name of Sam Houston became the first president of the Republic of Texas, Mirabeau Lamar took the oath of office as the first vice president. In the next election he ran at the top of the ticket. It must have been a strange campaign, as, before voting day, one of his opponents committed suicide and the other drowned in Galveston Bay. Left with no one to run against, the daydreamer who couldn’t manage a general store found himself chief executive officer of a republic larger than France.

Lamar’s overwrought sensibilities began to wax. He envisioned Texas as a great nation, a realm stretching radiantly all the way from the Sabine River to the Pacific coast. There was only one thing he needed to sustain his holy crusade against the Mexicans, Cherokees and Comanches who stood in his way, and that was money.

The first Treasury Secretary of the Republic of Texas had been a farmer named Henry Smith, who spent a great deal of his tenure begging President Sam Houston for permission to resign, as he was going broke. Henry Smith had tried and failed to raise revenue through real estate taxes just as Texas real estate went bust. He had tried to raise revenue through tariffs collected at the port of Galveston, but his efforts were met with widespread fraud. He eventually agreed to a system of promissory notes printed on one side with Texas stars and the other side left blank — a boon to counterfeiters of all stripes. The day President Mirabeau Lamar took the oath of office, Smith went back to his farm.

Lamar could not have cared less about real estate taxes and port tariffs, much less about bankruptcy, inflation, trade balances and the fact that the Republic of Texas could not mint any coins because the Republic of Texas possessed no precious metal. Instead, Lamar embraced the paradox commonly known among ancient philosophers as creatio ex nihilo — that is, the divine power to create something out of nothing.

It is not inconceivable that at some point during those long afternoons overlooking the cotton fields, Mirabeau Lamar had read about Louis XIV and the non-existent money that built Versailles, or the Bank of England notes of 1691 that funded the war against France — those £3 million that have yet to be repaid. Perhaps he was familiar with colonial financial history and knew of the 1686 paper emissions of Massachusetts, or had read Benjamin Franklin’s autobiography, in which the future profile on the $100 bill recalled steering home a wheelbarrow of his own freshly printed Philadelphia cash. Perhaps Lamar had heard of the paper money of the Tang Dynasty, the parchment currency of Carthage or the Swedish notes of 1661. He may have studied how the Alberti, the Albizzi, the Bardi and lesser medieval banking houses of Florence, Milan and Rome, had constructed financial empires upon mountains of debt. It is possible he had read The Travels of Marco Polo, and knew that the great and murderous Khan had conjured tree bark into cash.

Lamar was a dreamer, a poet and the president, so in January of 1839 he commanded the Texas Department of the Treasury in Austin to print 2.7 million Texas dollars.

The first Texas redback single featured a portrait of Daniel Boone carrying a rifle, dressed in buckskins, while a naked Native American woman paddled a birch bark canoe, looking back over her shoulder in fear. The $2 bill depicted a cowboy on a white horse, rounding up a longhorn, harnessing the uncouth forces of the west into commodity beef. The fifty boasted a portrait of the Father of the Republic, Stephen F. Austin, dressed in suit and tie, as well as an adoring, naked woman. Blatant as the imagery might have been, it did not inspire faith. A mere decade after Lamar’s creatio ex nihilo of money came a monstrous bankruptcy, as the Republic of Texas found itself in the hole for more than 10 million of these redbacks, none of which had ever really existed in the first place.

Three years after Mirabeau Lamar left office, James K. Polk of Tennessee, the 11th president of the United States, purchased the Republic of Texas for $15 million — equivalent to about half a trillion today. In the end, Mirabeau’s magic money had worked, as two years after that, Banker’s Magazine became the first to print the phrase “the poetry of Banking.” By then, Lamar had abandoned the muse of politics and the poetics of cash to devote himself to verses that had, in his own words, “dropped like wildflowers along the rugged path of public duty.” His Collected Works appeared in 1857, to tepid reviews.

Ready For Prime Time?

The decade preceding the American Civil War is generally considered the greatest era in the history of American literature. While imperial selfhood triumphed in Ralph Waldo Emerson, Henry David Thoreau and Walt Whitman, undecidability and terminal doubt powered the works of Nathaniel Hawthorne and Herman Melville. The A of The Scarlet Letter proved to be as resistant to decoding as the white whale or the underlying value of a wildcat dollar. It is hard to overstate the volatility of the mid- 19th-century American mind as it fluctuated between the poles of spirituality and materialism. Spanning both sides of the split lay the half-material, halffiction that was money. The North would need a lot of it to win the Civil War.

The number of dollars required was far beyond the horizon Hamilton envisioned when he first created the dollar, beyond what Jackson envisioned when he destroyed the central bank and left American money to the whims Second Quarter 2021 87 of his cronies and far beyond the fantasies of Mirabeau Lamar. For Lincoln and his Treasury Secretary, Salmon P. Chase, were not considering 2.7 million redbacks, but a quarter of a billion greenbacks, so named because the reverse of each note was printed in green ink. And it was not only the outlandish volume of greenbacks that instilled shock and awe, but the existential origin of the currency, for the demands of war had brought the dollar’s captivity narrative to its logical conclusion: a dollar defined by declaration. God’s first words were fiat lux — let there be light. Now, Lincoln, Chase and Congress had a new directive: let there be money, fiat money.

The terror of what hundreds of millions of greenback dollars might unleash upon the world was the theme of an apocalyptic speech delivered in January 1862, when U.S. Representative from Ohio George Pendleton took the floor and declared that if the members of Congress were to disengage money’s material moorings in gold and silver, they would

...send these notes out into the world stamped with irredeemability. You put on them the mark of Cain, and, like Cain, they will go forth to be vagabonds and fugitives on the earth. … It requires no prophet to tell what will be their history. The currency will be expanded; prices will be inflated; fixed values will depreciate; incomes will be diminished; the savings of the poor will vanish; the hoardings of the widow will melt away; bonds, mortgages and notes, everything of fixed value will lose their value … gold and silver will be driven out of the country. What then? The day of reckoning must come.

When the next presidential election came around in 1864, the Democratic National Convention nominated the great Union Major General George McClellan to run against Lincoln, and McClellan’s running mate was none other than the antiwar Cassandra of the greenback apocalypse — that same representative from Ohio, George Pendleton.

Sixty-five thousand Union soldiers were killed in the long, bloody summer before that election. When Confederate forces under the command of Jubal Early advanced to within five miles of the White House, economic debate abruptly receded. Given the proximity of actual fire and brimstone, Americans decided they could survive without gold. Paper money would do just fine.

Gold Fights Back

But the dollar’s emancipation would not be smooth going, nor the ancient myth of gold so easily forgotten. What war could banish, war could resurrect. Five years after the Union’s victory, soldiers from the French Empire and the German Confederation gathered on opposite sides of the Rhine. They fired lead bullets at each other, sprayed grapeshot from state- of-theart, breech-loading rifles and inaugurated a new weapon of mass destruction, the 750- pound mitrailleuse, precursor of the machine gun. The Franco-Prussian War left more than 900,000 casualties, and only ended when the German Confederation blockaded the road to Paris and all the dollars, francs, marks, pounds, silver and gold in the world could not buy a baguette.

The French surrendered in the spring of 1871, and as summer rolled around the Ger-mans wrote up a list of the outrages and crimes committed by their enemies and demanded five billion francs in reparations, a sum that would be worth around $500 billion today. The victors gave their vanquished foes five years to pay up, but as it turned out, the French were hoarding more metal than anyone ever imagined. Much to Chancellor Otto von Bismarck’s surprise, the French delivered the sum a year early, all of it in gold.

The melting and minting business returned in full force. The Germans fired up the cauldrons to just above 1,000 degrees centigrade and tossed in the lot of their francs. They liquefied the image of Napoleon III and minted Heinrich XXII, Ludwig II and Kaiser Wilhelm. And once the gold coins were ready, they pulled the plug on their silver mines, silver mints and silver thalers and relegated silver to the realm of bracelets and earrings. Scandinavia, France and Holland followed suit. Gold had taken money captive once again.

The return of the gold standard struck the artists and writers who had been radicalized by the failed revolutions of mid- century Europe as tragically absurd. The German composer Richard Wagner was typical of the type. So, while George Pendleton of Ohio had been terrified by the approaching apocalypse of greenbacks, Wagner began to work on a magnum opus that warned of the opposite: an apocalypse made of gold. His epic began and ended beneath the waters of the Rhine, which like the River Pactolus in which Midas had washed his cursed hands, flowed with gold. Here, Wagner imagined a vast hoard mined by the minions of Pluto, that long- forgotten race of gnomes known in German mythology as nibelungs.

The heroes and the villains of Das Rheingold ride horses with golden bridles, protect themselves with golden shields, drink wine from golden cups, and pray for treasure chests overflowing with red, silver and yellow gold. They kill each other with golden weapons then lie for eternity in golden coffins. The maidens wear golden girdles and golden thongs, and say things like: “If thou lovest me, let me fill 20 travelling chests with gold.”

The story starts when Alberich, an evil nibelung dwarf, steals a sacred hoard of gold and concentrates its power in a ring. Wagner had mashed up 19th-century German nationalism, European Romanticism, the allure of primitive ring money, the age-old border dispute between France and Germany and his own love-hate relationship with riches. No wonder the plot went right off the rails, proceeding to incest, suicide, castles in the sky, magic swords, giants, mermaids, dragons and immortal furies known as Valkyries. But the metaphors incessantly return to gold, as much “as 12 huge wagons in four whole nights and days could carry from the mountain down to the salt sea bay; though to and fro each wagon thrice journeyed every day.”

Adolf Hitler would read the character of Alberich as a veiled reference to Jewish bankers, but others saw it differently. George Bernard Shaw, a founder of the London School of Economics and a winner of the Nobel Prize for literature, devoted a book, The Perfect Wagnerite, to analyze what he called “the economic lines of the allegory.” That is to say that by the beginning of the 20th century, it was clear to fascist and socialist alike that money was an allegory, and the central figure of money’s final epic struggle would be gold.

George Bernard Shaw saw Alberich’s underground realm of enslaved nibelung gold miners as a model of capitalist manufacture, that the scene

… need not be a mine: it might just as well be a match-factory, with yellow phosphorus. … Or it might be a white lead factory, or a chemical works, or a pottery, or a railway shunting yard, or a tailoring shop … or any other of the places where human life and welfare are daily sacrificed in order that some greedy foolish creature may be able to hymn exultantly to his Plutonic idol.

On the coattails of Shaw’s radical reading of the opera’s allegorical money plot came the more sober musings of a German statistician named Georg Friedrich Knapp, whose book, The State Theory of Money, argued that the validity of a coin had little to do with its weight or the quality of its metal. Knapp had reached this conclusion during the 1870s, as alongside Wagner and Shaw he had witnessed the monetary outcomes of the FrancoPrussian War, when all previous state debts in silver were magically transformed into state debts in gold. When Germany changed the metal of the mark, it became clear to Knapp that the coins could just as easily have been stamped out of copper or nickel or tin. Money was a matter of law, and law was a matter of language.

For proof, Knapp needed look no further than the fact that the 1905 silver thaler weighed less than the 1871 silver thaler, but they were both worth the same three marks. That was because a mark, like a Bitcoin and a dollar and any representation of property, is a name that doesn’t necessarily have anything in common with the thing it names. Money was not gold or silver or grain or livestock or debt or credit or cash, but a yoke for any and all of them. We could choose whatever harness we wanted, but the most efficient and elastic yoke of all was language. That was why Knapp used a term he borrowed from the history of philosophy to describe the nature of money. Money, he said, was “nominal. … If anyone says that my own aim has been to discover the soul of money,” he wrote, “well, so be it.”

On the one side, the spirit of names; on the other side, the spirit of gold. Never had the two fictions been so far apart. But the genius of Alexander Hamilton’s original American dollar was that it had been engineered to embrace antagonisms. Conceived in aporia, the dollar’s infancy was not only bimetallic, but equal parts credit and debt. This may explain the successful outcome of the dollar’s long struggle, why after a century of strife the dollar would emerge as the most powerful currency ever, the world’s reserve currency, the fiction everyone believes.

In 1872, President Ulysses S. Grant signed the General Mining Act, which ruled that prospectors could stake claims on public lands by piling up a few rocks or driving in a few stakes. They would then be free to dig in the dirt as much as they liked, and would own everything they found. Over the course of the next century, the American underground would yield more than $230 billion worth of metal, but hardly any of that copper, nickel and silver would ever become money.

That was because the following year Grant signed the Coinage Act of 1873, which eliminated the silver dollar and directed the U.S. Treasury to stop accepting deposits in silver. The result was that even as industrialists and mining interests accumulated vast stores of non-gold metallic wealth, there would be no general increase in the money supply. Following Europe, the United States was back on the gold standard.

Grant had always teetered on the brink of personal bankruptcy. He was naive about finance. Perhaps that was the reason he decided money was gold. After all, no one genuinely wants money to be a white whale, its meaning impossible to decide. Considering how much time and energy we spend on it, everyone wants to believe money is real, not imaginary. It would be sad to see a Yurok at long last convinced that his cherished dentalia were nothing but clams.

The Dollar Unchained

But after rice money, whiskey money and wampum, after wildcat ten-penny-nail money, after a federal buyout of Texas redbacks and a Civil War won on the strength of 450 million greenbacks, the dollar could not stand captivity in a golden cage. The Coinage Act of 1873 was followed by the Panic of 1873, which was in turn followed by the depressions of 1884 and 1890, followed by the Panic of 1893 — when 600 American banks failed, 15,000 companies went bankrupt and for the second time in American history unemployment hit 25 percent.

To the rural Democrats who frequented the grain elevators and stockyards in the great markets of Chicago, money was a man standing up to his waist in blood, killing pigs. Money was wheat, corn and hay. Money was bacon, ham, sausage and steaks. So why, the farmers and ranchers asked, must the dollar be stuck in Plutonic captivity? Why must the dollar be gold and nothing but gold?

A political movement was born. For years, the Populists would rail against the everdeflating price of their grain and beef. The fault, they argued, was American money. They wanted the government to make more of it. An increase in the money supply, reasoned the wheat growers, would inflate the price of wheat, and an inflated price of wheat would allow them to pay their debts to the banks with dollars worth less than the dollars originally borrowed. And the quickest, easiest and most obvious way to increase the money supply was to make money silver again.

After thousands of years the Titans awoke. Once again, the metal gods went to war, and the demand to “Free Silver” became a rallying cry for Gov. John Altgeld of Illinois, Rep. Richard P. Bland of Missouri and Gov. Horace Boies of Iowa — all of whom called Grant’s Coinage Act the “Crime of 1873.” The old story was new again, including The End. The Greek poet Hesiod had declared the apocalyptic results as far back as 800 BC: “evil war and terrible battle.”

In 1896, the National Bank of Illinois collapsed, the largest bank to sicken and die up to that point in the history of the United States. If the financiers didn’t make use of their Colt pistols, they drowned themselves in Lake Michigan. Waves of anti-semitism erupted as the Populists blamed the Rothschilds of London for the international conspiracy of selling gold at exorbitant prices to the U.S. Treasury. The panic closed the Chicago Stock Exchange for three months. The dollar survived only after America’s wealthiest banker, JP Morgan, injected 3.5 million ounces of his own gold into the U.S. Treasury.

The Populists were thirsting for a redeemer, and he came in the form of a 36-yearold congressman from Nebraska scheduled to address the Democratic National Convention. On the third day — July 9, 1896 — he stood before the masses assembled in the Chicago Coliseum: “I come to speak to you in defense of a cause as holy as the cause of liberty.”

William Jennings Bryan’s economic argument was so simple that it hardly qualified as economics, and for good reason. His dollar was founded on the plot, character and metaphor that had mattered to him most since he had experienced a miraculous epiphany at a religious revival when he was 14. Like many a priest and poet, not to mention merchant kings like John D. Rockefeller and advertising executives like Bruce Barton, Bryan had seen that the story of Jesus and the story of money were the same story. What made Bryan’s version slightly different was that in his rendition, the arch-villain was gold. He stood on the podium in silence, his arms outstretched as though he were being crucified. Then he said, “You shall not press down upon the brow of labor this crown of thorns. You shall not crucify mankind upon a cross of gold.”

A dramatic reenactment of Christ on the cross at the climax of an economic speech delivered at a political convention might strike some as strange. The crowd, as reported by the Washington Post, fell silent. Then, “bedlam broke loose, delirium reigned supreme.” The masses lifted Bryan on their shoulders and carried him through the coliseum. Without a trace of irony, the St. Louis Post-Dispatch reported that the representative from Nebraska had immortalized himself.

It is hard to overstate the weirdness of the Cross of Gold speech going down in American history as perhaps the third most famous behind Martin Luther King’s “I Have A Dream” and Lincoln’s Gettysburg Address. But the Jesus-money moment landed Bryan the Democratic nomination and 46.7 percent of the popular vote. It wasn’t enough to win, and he lost again in 1900 to William McKinley, who took office and signed the Gold Standard Act with a golden pen. Eighteen months later, McKinley was assassinated and the New York Stock Exchange bottomed out at 53. The Trust Company of America failed, alongside Lincoln Trust, Knickerbocker Trust and International Trust. The Bank of New York also failed. Its constitution had been written by Alexander Hamilton.

Worse was to come. Over the course of three terrifying weeks in October 1907, the New York Stock Exchange lost half its value, and this time Morgan and the plutocrats had to pony up more dozens of millions of dollars, and even Congress had to admit that the gold story no longer made much sense. The result was the creation of the third central bank in American history, known as the Federal Reserve.

A reserve is that portion of land held back for posterity, that portion of the military held back for full-scale attack, the grain set aside in case of famine, the cash a bank keeps to remain solvent. It’s something you don’t see, but trust is there. It’s the money you don’t use, without which money couldn’t be used. A reserve is always two things at the same time, something both present and absent. As Georg Friedrich Knapp noted: “Gold reserves … must, of course, be inviolable, i.e., they must not be used in any form of State expenditure but such as involves conversion.”

What he meant was that the gold held in the reserves of a country’s sovereign bank could only be used as money in deals with other sovereign banks of other nations. The international interchangeability of gold would eventually power the final reversal of the dollar’s captivity narrative, but in 1913, the idea of releasing United States sovereign gold to other sovereign banks was theoretical.

In 1913, the gold bullion held by the Federal Reserve was worth its weight because of the emotional response it elicited. Knapp provided a rationale as to why this would be so. “The natural man’s feelings are autometallistic,” he wrote. Whatever the reason, the autometallistic feeling that emanated from the Federal Reserve brought immense relief.

Confidence that the U.S. government kept a hoard of gold locked up somewhere no one could reach provided widespread assurance, the feeling that dollars that might not reside anywhere in particular — or even exist — could always somehow be made to materialize. As a result, America became the land of creditbased acquisition. Here, washing machines, refrigerators and vacuum cleaners could be purchased by all. Twenty-six million cars were manufactured and sold during the 1920s. The Dow increased and multiplied six-fold. At the Republican National Convention of 1928, Treasury Secretary Andrew Mellon (worth about $300 million at the time) threw his support behind a mining magnate named Herbert Hoover (worth about $100 million), who became president in a landslide and promised a final triumph over poverty. “Any one not only can be rich,” he proclaimed in his inaugural address, “but ought to be rich.”

Depression Baby

Economists and historians debate the causes of what happened next. Buying stock with borrowed money was obvious trouble, along with bank deposits lacking insurance. The list of other culprits includes stagnant wages, higher tariffs, Midwest drought, international debt structure and growing income inequality. But such economic phenomena are not uncommon. Perhaps that autometallistic feeling just wasn’t enough to carry the economy. Whatever the cause, within a year of Hoover’s election he would be presiding over a 600 percent jump in United States unemployment. That, at a time when eight out of 10 Americans had no savings whatsoever.

Some say the president was unlucky. After all, he had been an orphan, and spent his childhood shuttling across the country from one relative to the next, looking for something solid and stable to latch on to. Perhaps that was why he fixated on rocks, which tended to stay in one place. He failed his entrance exams for college, all except for math, but that was good enough to gain admission to a school in Northern California that had just opened for business and was willing to accept just about anyone. It was called Stanford.

He graduated with a degree in geology but couldn’t find a job, so the future president entered the workforce at a northern California mine, pushing an ore cart for 70 hours a week. Friends in San Francisco eventually told him about an opening for someone willing to survey geological sites in the deserts of Australia and Asia, someone who would trek into wastelands without food or water in order to tell others where to dig and drill.

After a few years overseas Hoover was fluent in Mandarin, had opened his own consulting business, and taken stakes in silver and lead mines. But it was Burmese zinc that made his fortune. Zinc lends itself to commercial applications: batteries, deodorants, dandruff shampoos, paint, toothpaste, galvanized nails and throat lozenges. Before his 40th birthday, the poor boy was rich as Croesus.

Hoover believed that a dollar was no more nor less than its weight in gold, and that weight was 23.22 grains. He believed that the dollar linked all the world’s currencies in ratios, $4.86 for each pound sterling, and so on down the line of marks and francs and rubles in a great chain of being, 59 countries on earth bound together in metal, which was itself bound by the laws of mechanics, which were in turn bound by the laws of reason. Hoover had the best intentions to combat the Great Depression with every ounce of scientific, technological, engineering and mathematical know-how and can-do. He summoned captains of industry to the White House, he insisted that business owners maintain wages, he increased lending to banks, farmers and construction companies. He raised taxes.

None of it worked. Between 1929 and 1933, 5,000 American banks collapsed, and it looked to many as though Karl Marx had been right after all, that gold was a fetish as worthy of full faith and credit as a snail shell. The End was at hand. In desperation, the Federal Reserve recalled $300 million in bullion from across the Atlantic to be socked away in its underground vaults, as though a return of Montezuma’s treasures might reverse the plot.

The British economist John Maynard Keynes ridiculed the tactic as a holdover from the days of primitive money. Money was not bullion to be unloaded, packed up, and shipped from one place to another, like white and red shell armbands. The Federal Reserve’s recall of metal was like the recalling of “little household gods,” he wrote, to be swallowed by the “single golden image” which “lives underground and is not seen.”

Hoover may have possessed more money than even he could count, but it never occurred to him he didn’t know what it was. The soul of money wasn’t metal, and it wasn’t math. That was what Franklin Delano Roosevelt understood. On his first day in office he closed every bank in the United States. Then he decided that gold would no longer be street-legal, and ordered that all gold coins be turned in to the central banking system to be melted down into bullion, cooled into ingots and locked in cages in the sub-basements of the Federal Reserve. As per the Gold Reserve Act of January 30, 1934: “No gold coin shall thereafter be coined, no gold coins shall hereafter be paid out or delivered by the United States.”

Eleven years later, FDR died in office. Five months after that, as radioactive clouds hovered over the ruins of Hiroshima and Nagasaki, the economic dust of the American money plot had settled into irony: a dollar that could not be made of gold had endowed its sovereign state with more gold than any other country in the history of the world. The hoard amounted to more than 500 million physical ounces unambiguously corralled within the underground caverns of the Federal Reserve.

Gold had been exiled to the land of the nibelungs. Considering the damage done, it was poetic justice.