The Gold Clause: What It is and How to Use It Profitably
By Henry Mark Holzer
381 pages. $21.95
A plumb-line, as defined by Webster’s Dictionary, is “a line directed to the earth’s center of gravity; a cord suspending a lead weight, or plumb, used in sounding and in determining vertical direction.” In other words, a plumb-line is a tool used to keep things, such as fences or walls or houses or buildings, straight. This is a good thing, because it means the structure won’t topple over. In effect, then, a plumb-line protects against deviation.
In today’s world, it’s safe to say that most people have never heard of a gold-clause. A gold clause is a clause inserted into a legal contract. The clause stipulates that payment will be made in gold or in paper money equivalent to a certain amount of gold. A gold clause is like a plumb-line. It’s a method of protecting against the appreciation or depreciation of paper currency. Gold clauses keep contracts straight.
According to Henry Mark Holzer, who edited The Gold Clause, up until 1934, gold clauses were common place in legal contracts. Between 1934 and 1974, Americans were forbidden by law to own gold. So gold clauses disappeared. Now that the ownership of gold is back, so are gold clauses. However, despite their revival, gold clauses are not common place. In fact, they are rarely used. The reason gold clauses remain a rarity is because they often violate usury laws.
Which explains why Holzer put together The Gold Clause. He advocates the use of gold clauses and provides a suggestion on how to structure them so as to avoid usury.
The Gold Clause has nine chapters. The first eight chapters are the work of various experts, while the final chapter is the work of the editor, Henry Mark Holzer. All in all, Holzer has done a commendable job in masterminding a book that flows smoothly from topic to topic, yet remains true to the theme. Since most of the authors specialized in juristic matters, the book – from the average reader’s standpoint – tends to get bogged down in judicial terminology and the discussion of court cases. However, Holzer need make no apology for this, as the book was not designed for the average reader. It was intended, apparently, for contract attorneys.
Chapter One discusses the history of gold clauses, which originated in the Middle Ages. It also differentiates between the various types of gold clauses, which include gold coin clauses, gold value clauses, and gold bullion clauses.
The next chapter gives an overview of the Legal Tender Act of 1862, which introduced paper money – ‘greenbacks’ – in the U.S. for the first time. Depending on the North’s status in the Civil War at any given moment, the value of these new greenbacks fluctuated wildly. This resulted in a slew of legal cases. In the end, the U.S. Supreme Court ruled that paper money was constitutional. And what is interesting is that the Legal Tender Act of 1862 planted the seeds of the central banking system.
The nullification of the gold clause is the topic examined in Chapter Three. On March 6, 1933, F.D.R. closed U.S. banks. Three days later, Congress enacted the Emergency Banking Act, which gave F.D.R. unprecedented monetary power. Over the next 60 days big changes took place. Privately owned gold was confiscated and the dollar was devalued. And eventually, the Supreme Court decided that Congress had the power to abrogate the gold clause.
This abrogation of the gold clause is the subject of the next section of the book. On June 5, 1933, a Joint Resolution of Congress nullified gold clauses, declaring them “against public policy.” It was at this point that Congress appropriated vast monetary control to itself. The redistribution of wealth from the ‘haves’ to the ‘have nots’ became unofficial government policy.
In 1974, private ownership of gold was relegalized. Even so, the government and the Treasury made it abundantly clear that they were ‘anti-gold.’ And the fact that it was now legal for individuals to possess gold did not necessarily mean that gold clauses were once more acceptable. The gold clause question came before the Supreme Court, which denied “the right to demand payment of obligations indexed to a certain value of gold.”
Chapter Seven relates the ins and outs of just how the gold clause was finally relegalized. The politics on display in this section are both interesting and important, because they demonstrate how money and power intermingle.
Even though gold clauses were declared legal once again, in reality, their legality was open to interpretation. For some states interpreted such clauses as transgressing anti-usury laws. This is the subject of Chapter Eight, which analyzes in detail the legal proceedings surrounding a number of important cases.
Holzer – the editor – enters the fray in Chapter Nine. He examines the usury problem from the court decisions presented in Chapter Eight. In his conclusion, those court decisions were nothing more “than legalized theft,” wherein money was taken from creditors and given to debtors. According to Holzer, this means the courts in other states could replicate these erroneous and absurd decisions. Because of this possibility, Holzer advises creditors wishing to avoid usury allegations “to abandon the traditional gold clause.” Specifically, creditors must avoid denominating “the debt in currency dollars.” Instead, in Holzer’s opinion, the safe route is to utilize “the bullion-for-bullion provision and the silver bullion contingency.” This will “eliminate every possibility of a usury allegation.”
Holzer concludes by saying, “As of now, the gold clause is alive and well – and it ought to be used.”
Included in the book are over 200 pages of footnotes and appendices. In other words, The Gold Clause is well-documented.
From the historical perspective, The Gold Clause makes for an edifying read. For it maps the impact gold and the gold clause have had on both politics and monetary policies in the U.S. So in that sense, the book is enlightening. Yet one wonders just how often – in today’s society – gold clauses are actually used. Not much, one suspects. For they would appear to be obsolete in a world that has discarded the gold standard, opting for fiat currency. Thus, it is unclear whether Holzer is advocating a return to the gold standard or simply trying to breathe new life into the gold clause.
On the Read-O-Meter, which ranges from 1 star (worthless) to 5 stars (precious), The Gold Clause rates 3 stars. It’s a good book but not very pertinent.