Sunday, April 5, 2015

174. Money

     There are three subjects that have always fascinated, even obsessed people: sex, health, and money.  Books on these subjects may not make the bestseller lists, but they are sure to sell.  Because we want and need – or think we need – a lot of all three.  So let’s consider money.  Not that I’m an expert on the matter, I am not; these are simply the thoughts of a layman. First of all, what is money?

     “Money is fiction,” a Wall Street professional remarked, with an enigmatic smile, when queried by a TV host planning to do a program on the subject.  The program that resulted told of a small Pacific island where the commonly accepted money was statues.  The statues were installed at various spots on the island, usually on someone’s property, and everyone knew who owned each.  If one islander bought a plot of land from another, the buyer might give one of his statues in exchange.  No need to move the statue, since in this small community everyone knew who the new owner was.  The statues were not made on the island but imported from another island that produced them.  On one occasion when an islander imported a new statue by ship, and the ship foundered in a storm, sending the statue to the bottom of the sea, it hardly mattered; everyone knew who the owner of the lost statue was, and credited him with this new acquisition.  Even at the bottom of the sea, this hunk of stone was accepted as money, because the islanders believed in its value.  Money is fiction.

File:USCurrency Federal Reserve.jpg

     In America today, a huge society where no one can know everyone, we don’t use statues for money, we use dollar bills.  But a dollar bill is in itself just a piece of printed paper; it has no intrinsic value.  We accept it as having value because we have faith in the U.S. treasury and the U.S. economy, and right now the dollar is very strong compared to other currencies, because people the world over know that the U.S. economy, if not robust, is still stronger and healthier than all the other economies, some of which are on life support.  People believe in the dollar.

File:Morgan silver dollar.jpg     Why paper money?  Because it’s easy to tote around.  I came to appreciate this once when, traveling in our western states, I began getting silver dollars in change; the novelty soon wore off, and I was annoyed at having to lug around this heavy weight in my pockets. 

     Still, there was a time when governments minted gold and silver coins that had the value designated on them; in times of economic crisis people grabbed them and hoarded them.  But their value still depended on the common belief that gold and silver had value; without that act of faith, even gold and silver coins would be worthless.

     But this country didn’t always have dollars.  Back in the first half of the nineteenth century the common currency was notes issued by banks that were under state, but not federal, regulations, and those regulations varied from state to state.  The notes of the big New York banks, being backed by substantial assets, were highly prized throughout the nation and could be redeemed in gold and silver coins (specie).  But in boom times there were so-called “wildcat banks” in the South and West launched by enterprising gentlemen who had high hopes but only the flimsiest assets; when the boom ended, those banks usually went bust.

File:Five dollar Banknote of Citizens Bank of Louisiana.jpg
A Louisiana bank note of the 1850s.  It looks good, but was there specie to back it up?

     New York City has always been a place where people came to make money.  It began as a flourishing port, and as money flowed to it, it became the nation’s leading money center as well, with banks and insurance companies clustered along Wall Street and in its vicinity.  But merchants and drovers from other states flocked to it, the drovers driving cattle and other livestock to sell, and the merchants coming to replenish the goods of their stores.  With them both drovers and merchants brought what was termed “uncurrent money,” notes drawn on the banks of their region, often obscure little country banks that New Yorkers viewed with distrust.  These notes were honored in the city, but only at a discount that fluctuated, maybe seventy or sixty or fifty cents on the dollar, as reported in long lists of small print in the daily newspapers. 

     Dan Drew, a former drover who had become proprietor of the Bull’s Head Tavern, where drovers sold cattle to the city’s butchers, saw a chance here to make money.  He opened a firm on Wall Street and began buying uncurrent money at a discount.  Knowing him from his days at the Bull’s Head, the drovers flocked to him, eager to unload their unwanted bank notes even at a steep discount.  Drew then hung on to the notes and waited patiently until their value rose a bit, at which point he sold them at a profit.  Nice for him, but less so for the drovers.

     This state of things, with no federal currency and only bank notes from different states with different regulations, was chaotic.  There were those who called for a national currency that would be honored in every corner of the country, but many were suspicious of a strong federal government and resisted change.  (Yes, there were libertarians back then, too.)  Change did finally come, but only as the result of a crisis.  Which is the American way: resist reform until things blow up in your face, then think about it.

     What blew up in everyone’s face was the Civil War.  Suddenly, in 1861,  the U.S. government found its expenses soaring, as it put out contracts for uniforms, tents, blankets, rifles, bayonets, ammunition, and everything else needed to fight a long and costly war.  New York banks ran out of money to lend, and foreign banks demanded an exorbitant rate of interest, so President Lincoln decided on a bold and risky step: to print paper money in large quantities backed by nothing but the name of the federal government; the government’s creditors would either accept it or not.  And so, once Congress passed the Legal Tender Act of 1862, the printing presses got busy and bills began rolling out whose green print gave them the name of “greenbacks.”  The creditors accepted them, but with gold in hiding and greenbacks plentiful, the value of greenbacks declined in terms of gold.  Then news of Union victories caused the price of greenbacks to rise, and the price continued to fluctuate, depending on news from the battlefields.

An 1862 greenback.

     And so, with the country locked in a fierce struggle to preserve its very existence as a nation, speculators began betting on the price of gold.  If the North lost the war, gold would be of value, but greenbacks might be repudiated by the government.  But if it won the war, greenbacks would be of value, and gold would be less attractive.  To put it simply:

                    a Northern victory:         a Northern defeat:
                    gold up                            gold down
                    greenbacks down          greenbacks up

     As so often, Wall Street sniffed an opportunity: money was to be made by agile traders, especially if you got the news first.  The big Wall Street operators planted agents at the front to wire back the battle news at once, and bribed telegraph operators and secretaries to the great in Washington; often they got word of a battle before the President in the White House.

     As news of the gold speculation spread, the public too came flocking.  How could they not, when fortunes were being made?  Rumors circulated of stable boys sporting diamonds, and dry goods clerks driving fancy turnouts.  Soon fashionable ladies were seen reclining in cushioned carriages on Wall Street, while their servants fetched quotations from their brokers, and threadbare ministers from the provinces began boasting of one-day profits that topped their salary for a year.

     By the last winter of the war, with Sherman marching to the sea, and Grant hammering at the gates of Richmond, the gold traders had a home of their own, the Gold Room, on William Street.  Inside, a multitude of brokers shrieked their trades frantically as the price of gold rose, fell, and rose again.  At news of a Northern victory, exulting bears sang “John Brown’s Body”; at news of a defeat, bulls whistled “Dixie” and whooped.  Meanwhile, outside on the street, a huddled mass of speculators, ankle-deep in slush and scarved against the whip of the wind, eyed an overhead price indicator to whose fluctuations they had pinned their fortunes, their dreams, and their sanity. 

     Lincoln in the White House was well aware of all this, though powerless to stop it.  “What do you think of those fellows in Wall Street who are gambling in gold at such a time as this?” he asked Governor Curtin of Pennsylvania.  “They are a set of sharks,” said Curtin.  “For my part,” said Lincoln, banging his fist on a table, “I wish every one of them had his devilish head shot off!”

     And this regarding a speculation where no one ever saw gold, just certificates and statements of account.  Greenbacks versus gold: paper against paper, fiction against fiction.  Yet fortunes were made and lost.

     Clearly, to talk about money is to talk about gold.  So where is there gold, great chunks of it, today?  In this country, in a fortress-like building in Fort Knox, Kentucky, which holds, in the form of gold bars, a large portion of the U.S. government’s official gold reserves, worth some $380 billion and constituting about 3% of all the gold ever refined throughout human history.  Guarding this treasure are alarms, video cameras, microphones, minefields, barbed razor wire, electric fences, and armed guards, plus helicopter gunships, tanks, and an Army combat brigade in the vicinity.

The Fort Knox gold vault today.

File:Goldvault nyc.jpg
Bars of gold in the gold vault of the Federal
Reserve Bank of New York.
     Yet there is even more gold – some 7,000 metric tons of it -- in the underground vault of the Federal Reserve Bank of New York at 33 Liberty Street in downtown Manhattan.  In that vault, resting on bedrock 80 feet below street level and 50 feet below sea level, is 40% of the world’s gold, most of it held in trust for the central banks of foreign nations. 

     The gold at Fort Knox has long gripped the public’s imagination, as seen in the James Bond movie Goldfinger, based on the  novel of the same name, where the villainous Goldfinger sends Pussy Galore’s Flying Circus to spray the soldiers guarding Fort Knox with deadly nerve gas, so that he can steal its hoard of gold bullion.  (Needless to say, James Bond foils the plot, and the gold remains under wraps at Fort Knox.)  In fact, the gold at Fort Knox is so closely guarded that conspiracy theories surface from time to time, asking whether there is any gold there at all, following which assurances are made by those privileged few who are allowed to inspect the vault.  In this layman’s humble opinion, there is gold aplenty there, and I’ll leave it to the experts to debate whether or not this hoard should even exist.

     Gold fascinates us as no paper money ever can.  It is the refuge sought by many whenever the economy seems threatened and paper money is suspect.  Today nutritionist Gary Null, who also opines on economic matters on radio station WBAI, predicts that in the near future the dollar will be dethroned as the world’s most stable and sought-after currency, with resulting disruption in world markets.  So where does he advise savvy investors to put their money?  In gold.

     As a layman I don’t presume to know whether Null’s advice is sound.  There have always been “gold bugs” predicting imminent financial ruin and talking up gold as the only safe form of wealth.  But in the long run stocks and bonds have outperformed gold, which, like all commodities, fluctuates in value.   

     All this talk about money and gold rings strangely in the supposedly Christian West, for Jesus was not exactly friendly to wealth.  In Matthew 19:24 he famously declared, “It is easier for a camel to go through the eye of a needle, than for a rich man to enter the kingdom of God.”  The poor were much dearer to him than the rich, and in the temple he overturned the tables of the money changers and drove them out. 

     The early Church condemned usury – the lending of money at exorbitant interest rates – and Henry Adams’s classic work Mont-Saint-Michel and Chartres observed that the Virgin, to whom the cathedral of Chartres is dedicated, had little interest in bankers.  This suspicion of bankers, whether Christian-inspired or not, has persisted into modern times and even infiltrated popular entertainment.  Whenever the radio soap opera Ma Perkins required a villain, the writers trotted out the local banker, who never failed to cause trouble until finally foiled by Ma.  And today, in the wake of the financial crisis of 2008, the reputation of bankers in this country is somewhere below that of cockroaches.

     But as feudalism and the age of faith transitioned into capitalism and a more secular time, the churches – both Roman Catholic and Protestant – found that bankers and the money they provided (at a good interest rate) were, under certain circumstances, perhaps acceptable.  It’s no coincidence, I suspect, that the Medici family of Florence, the greatest bankers of Renaissance Italy, provided two Popes to the Vatican, as well as two queens to the kingdom of France.  And in 1942 Pope Pius XII by papal decree founded the Vatican Bank, a privately owned institute located exclusively on the territory of the Vatican and reporting to the Pope.  Its operations have been murky and touched by scandal and corruption, including recent charges of money laundering.  Today Pope Francis is encouraging more transparency and reform in the operations of the bank and the Curia, but there is an old Italian saying, “Popes come and go, but the Curia is forever.”

     How can even an honored institution like the Catholic Church – or any church – ignore or condemn money and those who can provide it?  We live in the age of capitalism, which evaluates everything in terms of money.  In France the transition from feudalism and the ancien regime to the age of money is seen in the shift from the sayings noblesse oblige and le bon sang ne ment pas (good blood doesn’t lie) to the words attributed to François Guizot, the minister of Louis-Philippe, the “bourgeois king”: “Messieurs, enrichissez-vous! (Gentlemen, get rich).  Capitalists, both French and American, having been doing so ever since.  Taken to its seemingly logical extreme, capitalism embraces and exemplifies the creed that Ayn Rand preached so fervently: Greed is good.  (For more on Ms. Rand, see post #131, “Ayn Rand, High Priestess of Egoism.”)

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Hetty Green, date unknown.  To judge by
her expression, money doesn't buy happiness.
    One last thought: how we handle money reveals a lot about who we are.  We humans range from savers to spenders, from tightwads to spendthrifts; I’ll give one example of each.  Prominent among the tightwads was Hetty Green, the “witch of Wall Street,” who in the Gilded Age amassed a fortune by investing and was considered the richest woman in America.  To save money, Hetty is said to have never turned on the heat or used hot water.  She wore old black dresses till they wore out, dined on fifteen-cent pies, and once spent half a night searching her carriage for a two-cent stamp she had lost.

     As for spendthrifts, I’ll mention impresario Mike Todd, who, to celebrate the one-year anniversary of the premiere of his award-winning film Around the World in 80 Days, on October 17, 1957, threw a party for 18,000 guests at Madison Square Garden that he vowed to make the “biggest goddamned birthday party the world has ever seen.”  Todd’s wife, Elizabeth Taylor, played hostess and had to climb a flight of steps to reach the 14-foot-high cake, the largest ever baked, so she could cut it.  Also memorable was a 24-foot replica of an Oscar, made up of 100,000 chrysanthemums.  Gifts awarded to guests through a drawing included a Cessna airplane (yes, it was actually there), automobiles, motor scooters, 100 cameras, 4 mink stoles, 250 bottles of vodka, 10,000 imported cigars, 100 pairs of ivory chopsticks, 6 ladies’ revolvers in pastels, a rickshaw from Japan, 40 Siamese cats, and 1,000 Decca albums.  Folk dancers, cowboys and Indians, elephants, monkeys, and Keystone Kops performed on the main floor, and the whole event was covered live on television, albeit chaotically, with celebrity interviews interrupted abruptly by commercials.  There was pink champagne, but served in paper cups.  Those hoping for caviar had to make do with hotdogs, pizza, and pickles, and when the waiters couldn’t reach the hungry guests crowded into the Garden, they tossed the food to them in what soon resembled a food fight.  It was grandiose, it was chaotic, it was silly; reviewers called it disastrous.  They don’t give parties like that anymore … thank God.  Todd died a few months later when his private plane crashed in New Mexico, the only one of Taylor’s seven husbands that she didn’t divorce.

File:Mike Todd Elizabeth Taylor Around the World in 80 Days first anniversary special 1957.jpg
Mike Todd and Elizabeth Taylor at home, from a film clip used to promote the anniversary of
Around the World in 80 Days.

     Spring in New York:  Yes, there are crocuses and daffodils in parks and gardens, and yes -- finally! -- it's getting milder.  But more than that is happening.  To celebrate the 99th anniversary of the Easter Uprising in Dublin in 1916, on Easter Sunday, April 5, Irish Americans are holding ceremonies at the graves of two activists of that time in Woodlawn Cemetery in the Bronx.  And if they're honoring the 99th anniversary this year, imagine what they'll be doing for the 100th anniversary a year from now.
     Usually at this time of year the Indo-Caribbean population of the Richmond Hill neighborhood of Queens celebrate spring's arrival in the Phagwah or Holi festival, with singing and dancing and the tossing of colored powder and liquid dye on one another.  I have never witnessed this event, but a photo in the Times shows Indian women in colorful costumes parading and dancing joyously.  This has been an annual celebration since 1988, but not this year, alas, for divisions among the organizers have reached the point where the festival itself has been canceled.  This is  outrageous, this is sad.  And stupid, as many in the community are saying.  So it goes in the city of New York.

     Coming soon:  Are New Yorkers really rude?  We'll debate it, consulting both residents and visitors.  Plus three rights that New Yorkers claim as inalienable, and six things visitors shouldn't do.

     ©  2015  Clifford Browder